My start up wealth creation experiement

I had posted late last year about trying to create or simulate meaningful wealth creation in a manner similar to an employee of an early stage business. Here are some updates on that experiment.

We often see reports of meaningful wealth creation by early employees at people in places like Facebook or Google and stop and think to ourselves, wouldn’t that be cool if that was me! However we often don’t realize the hard work and dedication and sacrifice that goes into being an early employee at some of these places. I read reports of early employees at Google putting in 90-100 hours a week at work on a routine basis. Sure, these early employees ultimately made huge amounts of money but that’s not an insignificant sacrifice upfront without any certainty of reward

Also lost in the mix is that of the one or two companies that create significant wealth for their early employees are stories of the hundreds of other companies that have amounted to nothing, with the hopes and dreams of these employees becoming fragments in the dust.

It was the combination of these things that led me to trying interesting experiment (before I joined a ‘start up’ myself!). What if someone could proxy the ‘financial’ sacrifice typical of an early employee but handpick the businesses where they get equity?.  After all the idea of getting employee options is simply exchanging upfront and foregoing time salary and other benefits with the potential promise of a significant windfall when the company makes it big later on.

Instead what if somebody just made a commitment to invest a significant amount of money on a regular basis in one or two hand-picked early-stage businesses and tracked the wealth and rewards that flowed from that experiment. Sounds like a foolhardy endeavor? Well that’s exactly what I did this time last year

I sunk a meaningful amount of money into relatively early stage businesses Aconex and Wisetech Global with the view of effectively proxying that journey like the employee of a start would. I invested a fairly significant amount of my capital in each of these businesses and have since backed it up with incremental capital being further invested in both of these businesses since then.

The results of this experiment have been very interesting so far to say the least. In the case of Aconex growth has slightly underperformed market expectations with the result that it’s been the subject of various short-sellers attacks over the course of the last year. While I still believe that the business is performing well, the market has successively derated the business such that the share price was in freefall for a period of time. I took advantage of this decline to average in with the result that my initial investment of $25,000 was subsequently increased to approximately $60,000.

I am roughly down 15% on my initial investment, and it stands at $50,000. However I still have a strong long-term view on the likely success of this business. Again, the idea of being an early employee in a potentially great business, is that you keep getting regular stock rewards in exchange for an effective investment of your time and effort.

Wisetech Global on the other hand has been a very different story. My initial investment in this business of $25,000 was subsequently increased to just under $50,000.  The performance of this business has been good. Way better than what I expected. My investment has almost doubled to just under $95,000.

So net net, my $110k of initial capital is valued at close to $145k. I don’t call victory or loss on this experiment yet. I am in innings 1 of an 8 innings journey, literally.  Both these businesses are still in their infancy, with a significant way to go in the journey. I believe both are exceptional quality. However, even for early businesses of exceptional quality, much still has to go right. You need market forces and trends to move in your favor. You need that to happen in a timely fashion. In each case though, I am making a concious commitment as a ‘quasi employee’. Instead of contributing sweat equity, I am stumping up an equivalent amount in capital.

For the moment, I don’t have plans to have meaningful amounts of capital to either business. If significant opportunities present themselves in time, I will reassess this. I am making a commitment to hold both for at least 5 years, no matter how markets may wax and wane.

Speak Your Mind