How to combine a corporate job with startups for a life of purpose, passion, and potentially life-changing outcomes.

I recently spoke at an event about starting, advising, and investing in startups. The audience mostly comprised senior professionals, who were living the corporate life in Singapore, my former home, with varying levels of startup experience. Some were investors, others advisors, and in several cases, they were founders themselves. All were keen, one way or another, to get more involved with startups.

My exposure to blue chips has always been that of an outsider looking in, an observer, learning from friends and colleagues, and from my wife, Anna. As someone who's spent a lifetime starting, building, and investing in new ventures, I can see both the pros and the cons of a corporate jobs. But as I see it, I never had the option to go the corporate route. I had my first experience of "exiting" a business when I was in my early thirties, and after that I was addicted. These days I spend all my working hours building, investing in, advising, and helping to grow the value of "my" startups.

If you're in a corporate gig, why do the startup thing?

Generally speaking, there are four reasons why:

Enjoyment.

First of all, it’s great fun. Entrepreneurs tend to be creative, energetic, passionate people, with a clear, compelling vision of the future. Being around them is inspiring. To someone who's used to the politics and bureaucracy of the corporate world, startups can be pretty chaotic and exciting.

Satisfaction.

If you love helping people, as I do, startups are a great way to get your fix. Usually founders not only need help (a lot!) but also welcome it. Most want their startup to grow, so if you know how big businesses run, you can probably add some value. At the same time, most entrepreneurs are trying to change the world. Who doesn't want to be part of that?

I have a portfolio of around seventy five startups. I don’t try too hard to keep track of them, but I understand what they all do. If I see an opportunity to help one of them, usually by making an introduction, I always try to do so.

Sometimes I’ll be more closely involved, maybe as an advisor or mentor, but otherwise I just dip in and out when I see a way to be useful. I find this very satisfying, and it creates a lot of good will and positive karma. What's more, it's excellent for networking. Of course, it's also a way for me to try to protect my investments.

Safety!

Supporting startups is a good proxy for launching your own. You can enjoy most of the ups and downs, of which there will be many, without having to do the day-to-day work, and without the risk to your own reputation and financial wellbeing. In the last month, I’ve received updates from six of my portfolio companies, one of which is already worth ten times more than when I got involved. To me, these updates arrive like unexpected gifts. I wait until I’m good and ready, maybe with a cup of tea or glass of whisky, then I dig in with great anticipation. It doesn’t even matter how much of a stake I have. It’s equally exciting. Of course, the updates aren’t always good, but when they are, they’re a true highlight. As a way to get that entrepreneurial fix, in my opinion, acquiring startup shares cannot be beaten. It's also far more sensible than launching your own!

Untold riches.

Of course, there’s the cash.

I firmly believe that owning a piece of multiple companies is one of the best ways to make serious money. There’s a right way and a wrong way of going about it, but if you diversify your risk and pick sensibly, anyone with $100K* to invest (or the equivalent in time) stands a chance of making a life-changing return. Certain early investors in Uber, for example, who committed $25K, walked away with $250m when the company listed. Of course it's rare, but it's possible. What other ways could you hope to make that type of return?†

* I'm aware that $100K is an awful lot of money to most people, but to the senior professionals I was talking to in Singapore, this was probably not the case.

† NOT investment advice!

Purpose.

For me, there's a fifth reason. After about 44 years of being alive, and a lot of trial and error, I finally discovered my life’s purpose (and, as they say, I haven’t worked a day since). As well as striving to be a good son, father, husband, and friend, I decided (or maybe just realised) that my purpose is "to try to make a positive impact on all the people I meet". Helping people, essentially.

It may sound contrived, and perhaps a little douchey, but it is genuinely what brings me the most satisfaction and joy.

As a perennial "wantapreneur", most of what I’ve learned and now enjoy relates to starting and investing in private companies. So most of the time that's what I draw on when trying to help people.

Getting started.

Some people, me included, find their way into startups by accident. My own pivotal moment occurred in 2005, when I bought into a creative agency in the UK.

After working in London for 2 years, then taking a further 2 years off to travel, I joined a small design business in the South West of England. It was a reset. My intention was to write copy by the sea, windsurf with my twin brother, and live life away from the rat race. Soon, however, it dawned on me that I was more ambitious than I'd realised.

I found myself telling the owners of the business that either I needed to run, and own a piece of, the company, or I was off to do something else. It wasn't a threat. I genuinely thought I could do a better job. I also had nothing to lose. Luckily for me, they agreed.

I won’t bore you with all the lessons I learned, which were countless (mostly teaching me how little I knew about business, after all!), but later I sold my shares back to the company. It wasn’t a huge amount of money, but it did give me my first taste of equity ownership, and the feeling of "an exit". After that I never looked back.

How to get properly involved with startups.

Assuming you don't want to join a regional design agency, then threaten to leave unless they give you equity, I'd say there are four accessible ways to enjoy company ownership. Each involves different levels of effort, expertise, and capital.

1. Become an angel investor by committing money directly into startups.
2. Avoid the effort and complexity of finding and picking great companies by investing in a fund that backs early-stage startups.
3. Earn a percentage by becoming an advisor.
4. Launch your own venture.

Which of these you do depends on what motivates and excites you.

If what drives you is money, do not launch your own startup.

If you're mid-career, like most of the founders we work with, you would probably be horrified by how poor startups can make you feel. Covering your own rent, school fees, health insurance, fuel, flights, etc, without a salary to pay for it can be terrible!

No, if your goal is to make a financial return, stay in your job, put some money aside, and invest into startups you believe in. Better still, become a limited partner (an "LP") in a great fund. Here are some thoughts to help you get started...

What's the best way to start investing in early-stage companies?

I’d recommend doing two things:

1. If you want to invest directly, find someone who’s already good at angel investing and ask if you can piggyback on their deals. Quite naturally, beginner angel investors have little idea what startups to invest in, or how to find them. Invariably, first-time angels make mistakes: they underestimate how long it takes to get a return (if there is one!), they invest too much too soon, and they focus too much capital on too few companies. Following someone with a strong track record can help you avoid these errors, and save you a lot of money!
2. Alternatively (or in addition), find a fund with a great reputation that invests in early-stage startups. Put some money into that. This will probably require writing a bigger cheque (probably minimum $100K versus maybe $20K-$50K, if you invest directly into a startup), but overall it will cost you less. In a fund, your money will be spread across a wide portfolio of companies. That makes it cheaper and means your risk will be spread automatically.

Note: I've deliberately suggested early-stage rather than late-stage funds, because the former gives you more access to the portfolio companies. This is about getting involved, not just about making money. Late-stage founders have no interest in talking with a minor LP of one of their funds. Early-stage founders, however, may be grateful to speak with you. At the start of their business journey, founders tend to welcome advice. They more likely to share challenges they face, and they ask for help more frequently. They may even invite you to get involved formally. There are some great early-stage funds too. I'm an investor in three: Antler, which now invests via different funds based all over the world; Nova, which may appeal to UK investors, as it offers the benefits of (S)EIS; and Investigate in Singapore. The last one is dear to my heart and the first fund delivered 2x within a very short space of time.

The benefit of option 1 (following an angel) over option 2 (the fund) is there’s no charge. The disadvantage, however, is that you may have to invest more in each company. Often there’s a $20K or even $50K minimum investment. You’ll also have to do your own due diligence and paperwork for each investment, and you’ll need to work out which successful angel investors you can piggyback.

The benefits of the fund, on the other hand, are the fact that overall you can invest less, you’ll only have to complete the fund’s paperwork once, and you can rely on expert investors to find and close the best deals on your behalf. The disadvantage is they typically charge 2% per annum on your invested capital, plus 20% of any profit they make you.

What are the pitfalls of angel investing?

Most people who've invested in the markets will know the importance of avoiding a big loss. While one may assume that, to recover from a 50% loss, one must merely make a 50% gain, this is not the case. What's more, as the table above illustrates, the gains required to recover from a loss grow exponentially the more you lose. If you lose 50% of your capital, you need to make 100% on your remaining capital just to get back to where you started. If you lose 90%, you need to make a 900% (9x)!

A total loss is quite common in angel investing. In fact, it's probably unavoidable. It is therefore critical to ensure that your loss isn't too large. The best way to do this is to diversify.

I believe, in order to have a decent chance of success, you need to spread your total investment amount over at least 20 early-stage companies. Most angels invest far too much in their first deal(s), which means they’re heavily reliant on those first companies being successful. I made this mistake myself. When I was just starting out, a friend and I invested £350,000 in a single transaction - the very first deal we had done together. This was about one third of our total pot. Far too much. When the portfolio company was acquired some years later, it was not the outcome we wanted. We received a payment of around £35K. Clearly this was a bad start. Had we been more strategic, and spread our fund more equally across our portfolio companies, the hit would have been significantly less painful, and we would be much better off.

There's a second benefit to diversification. Known as "the power law" among VCs, it's not uncommon for the returns of one of the fund's investments to dwarf the gains from all of the others combined. As a result, the success of an investor is often defined by whether or not they got into one specific deal. Look at the Australian investors who backed Canva. They all look like rockstars. Those who passed, on the other hand, look distinctly average. To some extent this is true of angels too. While the chances of happening across the next Amazon are slim, the more bets you place, the greater your chances of being part of one of those rare rocketship stories. For my part, I almost invested in the fintech, Revolut. The company raised just over £1m in its first crowdfunding campaign in 2016, but I passed. I thought the >$30m valuation was too high. It doesn't look so high now, considering the current valuation is over 1000x (10,000%) higher. D'oh!

Make angel investing just one of your investment strategies.

Continuing the diversification theme (and, again, we're not financial advisors!), I think it's generally accepted that angel investing should be just one form of investment. It's wise not to be too concentrated. A whopping 70% of my net worth is tied up in startups, which is a lot more than I would recommend. I'd say 20-30% is more sensible, and a good rule is to invest what you can afford to lose.

My concentration comes as a result of two factors. First, I’ve spent ten years learning this stuff. I'm a much better angel investor than I am, say, a stock picker, so I now gravitate to where I'm most comfortable. Second, some of my bets have grown reasonably large, at least on paper. The current (paper) value is disproportionately high compared to the amount I invested (I’m well aware that some of it may never pay out!).

If you're just starting out, it’s sensible to invest a smaller amount, until you get comfortable. Having said that, don't wait too long because...

Angel investing is a 10-year commitment.

No matter how many enthusiastic founders tell you they're "going to exit via trade sale or IPO after 3 years" (groan), the reality is that most angel investments have a 10-year incubation period. More often than not, if the cycle time is shorter than that, it's because the company failed and you lost all your money.

I started investing in 2012 and to date I’ve only had 5 exits (out of 75). I've been an investor in at least 50% of my portfolio companies for more than 5 years.

There's no way out!

Crucially, I couldn't get out even if I wanted to. Although one or two platforms are experimenting with secondary markets, generally speaking, there are no buyers for your startup shares. You're stuck with them, for better or worse.

So, if you can't get out of the investments you've made, and you're unlikely to get any liquidity in the first 5 years or so of investing, you need to pace yourself. Don't blow your budget in the first year. If you do, you're probably going to have a long wait before you can start investing again.

A better option is to put aside some investment funds, then plan to invest them over a period of four or five years. If your earnings allow it, you can top up these funds from your income, which will allow you to spread out your investments even further. All the while you'll be learning what works and what doesn't. Your later investments will probably do a lot better than your earlier ones.

How many 10-year cycles are you prepared for?

Finally, it may also be useful to think ahead. Most angel investors are in their forties and fifties, because it took them that long to make some money! If you start investing when you're forty, and you start "harvesting" when you're fifty, are you prepared to go again, and wait until you're sixty before you start cashing out? Of course you don't have to decide right away, and hopefully you'll get some liquidity inside of ten years, but it's something to consider when you devise your strategy.

Can you get involved in startups without becoming an investor?

Yes, you can - in one of two ways:

Become an advisor.

Over the past decade, I've supported several companies with my time in exchange for equity. It can be a great way to get shares in a company you believe in, but I've learned it's important not to conflate your work with your belief in the company.

In the past, I've helped startups because I had the time, I thought I could make a difference, they needed someone, and I liked them. These are good reasons to offer support, but they're not necessarily the same reasons you would invest.

If you're looking to learn, offer support, and simply be involved, advising startups is a good way to go. If you're looking for a financial return, it's probably not the best option. The startups you want to invest in are rarely the same startups that need help. The former are able to attract investment (including yours!), which they can use to hire the staff and advisors they need. The companies that reward their people with equity are often those that can't raise. In most cases, companies that don't appeal to investors are less likely succeed. That means the shares they hand out to staff and advisors, like you, are often worthless.

This is clearly not always the case, but it's something to bear in mind. What's more, very few people are able to advise multiple startups simultaneously. If you're helping one company at a time, it's hard to get the much-needed diversification we discussed earlier. So you're back to having all your eggs in one basket... and perhaps not the most desirable basket at that.

Start your own company.

There’s a lot of talk about “wantapreneurs” - people who would love to do a startup but don’t. As far as I know, it’s a derogatory term. But the truth is, for most people, especially experienced professionals, a startup is a pipe dream.

Startups don’t pay the bills. If you’re a twenty-something, and able to live on your friend’s sofa, eating pot noodles, fine. But if you have to support a family, pay for a place to live, and fund the everyday demands of middle age, launching a startup simply isn't feasible.

The mid-career founders that do it are either:

• Rich already (maybe from inheritance or some kind of previous exit); or
• Somehow managed to get a side gig up and running while working full-time (very rare); or
• Have a working spouse, who pays the bills.

If you’re not one of the above, you basically have no chance. That's why we started DQventures. There are some phenomenally successful startup accelerators and programmes out there, but generally they require full-time participation. Even their executive programmes require you to go full time after an initial (usually short) period. But getting a business up and running, to the point that there’s proof that it’s actually working, takes time, effort, experience, and often money. Most mid-career professionals may have experience and money, but usually they can’t afford the time.

On the flip side of that story, as an investor, it’s generally the more experienced founders who tend to create the most success. They know their industry, they’ve often identified a very real problem, they understand the potential pitfalls of a solution, and they have the credibility and network to make themselves heard. What’s more, mid-career professionals are usually more self-aware. They’ve worked out their weaknesses and know how to play to their strengths. These are the people investors like to back. We just need more of them.

That’s why we launched DQventures. You can read more about how it works here. (Quick plug: if you know someone fantastic, who is tempted to leave their job to launch a startup, we’d love to speak to them before they take the plunge!)

Why should experienced professionals NOT launch a startup?

That’s an easy one - because launching a startup is crazy. It’s the most extreme way of putting all your eggs in one big basket - your financial well-being, your reputation, time with your family, even your mental health. Launching a brand new company with the goal of accomplishing something that’s never been done before is one of the hardest things you can possibly do.

That’s why we always tell people not to do a startup to make money. It’s a ridiculous financial decision. Sure, startups create life-changing wealth for a few, but it can cause all kinds of ruin for those who don’t make it. Everybody thinks they’ll be one of the lucky ones, but of course most of them are wrong. In my experience, this is not because they weren't good enough. The majority of people who dare to start something are smart, capable, exceptional people.

No. Doing a startup for money is madness.

However, a lot of people don’t launch startups to make money. They do it because it’s their passion. They believe in their idea. They know it will work. They’re driven to see it become a reality. Also, quite often, in my experience (and in my case!), they hate having a boss, they love independence, they relish being creative and solving complex problems, and they’ve already convinced themselves, and others, that they can do it.

Those are the reasons you should do a startup.

DQventures is here for people like that.

Image credits

– Turn ideas into reality by Mika Baumeister.
– Smart versus scruffy image from Twitter.
– Enter at your own risk by Erik Mclean.
– I'm doing this for me by Anna Tarazevich.
– Burning money by by Foto-Rabe.