No, You CAN’T retire rich at 30 if you sell your startup


I personally find the people who are in the software startup game just for the money to often be nearly delusional about their chances of success and the likely magnitude of it when it happens. Before I get into the details for founders, let me talk about options-hungry employees. If you are in it for the money and you aren’t a founder, you’re sticking your head in the sand. Full stop. Yes, you can point at your anecdotal evidence at once-per-generation companies like Google, Amazon, and Microsoft. But for the most part, employees never get “I never have to work again” rich doing startups. There are too many mechanics out there to make sure that the folks taking the real risks (investors and founders) make the real money. If you want to read more, read my intro to startup stock options. If you don’t want to start companies, focus on salary and how much you enjoy working at startups.

But even if you are a founder, don’t do it for the money. Do it because you love small teams. Do it because you love your product. Do it because you love playing the startup game (even if you don’t win it). But for the love of God, don’t do it because you think you’ll get rich and retire on a beach somewhere when you’re 30. Because, as crazy as it sounds, when you sell your first company it almost certainly isn’t going to happen.

Let’s run through a common exit scenario. You and 2 co-founders spin up a company (say you’re creating one of Mike Arrington’s “Dipshit Companies that wants to sell to Google for $20m“). You take a smallish seed round and a small-ish Series A round (yeah yeah, you can bootstrap– but the vast majority of 7 to 9-figure exits are funded companies). So after investors and options for employees, let’s say you each own 20% of your company (it can be a lot less or more, depending on what kind of leverage you have while fundraising, how big your options pool is, and how many of those options are exercised/accelerated upon exit). Now let’s say you exit for $20m 3 years into it. Congrats! Light up the cigars and start hunting for beach houses– you’ve now joined the new rich! Except you really haven’t. You see, you (like a lot of folks) aren’t really thinking what it means to retire at 30. You’re not alone. The fellas at AdGrok have the same mental math going on in their head in their “Fuck You, Money” post:

“Before anything else, let’s do the numbers: money market funds yield around 4%. That’s $400K interest on $10MM, which is certainly a living wage, leaving aside inflation. Of course, it doesn’t have to last forever: human life is sadly finite. Crunching more realistic numbers, ‘fuck-you money’ is about $4.2MM for a 30 year old guy who plans on dying at 70 and wants to make $200K/year. Well within the payout picture of a fortunate startup founder whose company is acquired.”

Of course, many of these numbers are strange. 4% for a money market? I’d love a link to that– the best I’ve been able to find is around 1.5% right now for a jumbo money market. Dying at 70? Chances are you’ll live to 90, at least. “Leaving aside inflation”? That’s disastrous (why would you leave aside a number that cuts your 4% by more than half?!). Let’s run through some REAL numbers, using my “Early Retirement Spreadsheet” (AKA “Fuck You Money Spreadsheet of DOOM” – feel free to save a copy and noodle with it).

In our above scenario, our happy founders are walking away with 20% of $20m, or $4m (might be a touch more due to unclaimed options, or a lot less if your investors are the double-dippin’). $4m– we could live on that forever, right? Let’s plug in some variables. 3% for average inflation (a touch higher than the average over the last decade to be conservative). Let’s assume you can get a 5% return (even though the last decade gave us -0.99% for the S&P and the outlook isn’t too rosy). And let’s assume you want to live in a major metro area in a nice house, a couple of kids in private school, and solid travel budget. You’re a millionaire, right? So let’s assume your annual family budget will be $200k. Upper middle class– certainly not in “butler country”, but real comfy, flying first class and living large. Here are our variables:

That’s not too crazy-conservative, is it? Heck, if you’re earning 5% on $4m, that’s $200k right there. No problem, right? You can coast forever with your fat nest egg largely untouched. You’re probably doing what I (and the AdGrok guys above) were doing: “Leaving aside inflation”. Let’s look at what you’ll have to spend to keep your $200k per year lifestyle with compounding annual inflation.

Wait a minute! I’m going to be spending nearly half a million dollars per year when I’m 60 to compensate for a 3% annual inflation? Don’t worry– you’ll be broke LONG before you 60th birthday. Let’s look at how your F@#$ You Money evolves over time with these variables.

You don’t even make it to 50. If you want to be optimistic about inflation and investment income (after all fees) and nudge them to 2.5% and 7% respectively, you don’t make it to 60.

There are a few morals to this story:

  • make sure you freakin’ LOVE what you do. Love the game, love your product, love your co-workers, love your market.
  • If you are going to be a mercenary, make sure to optimize not just for “f@#$ you money” but “f@#$ you influence”— make sure that as you sell your $20m company that you are well positioned to build another company, have a fat executive job, some great advisory roles, paid speaking engagements, and the like. Because you’re still going to want income.
  • DON’T love the idea of living rich AND being retired. You can live rich on $5m OR you can retire early with $5m– but you sure as hell aren’t going to do both… for long.

Note: If you’d like to see the spreadsheet, it’s here. You can make a copy of it if you’d like to noodle with the variable to find your personal “never have to work again” number.

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  • For those mathematically inclined, the “real” FYM number is:

    (FYPrincipal – one-time taxes) * (annual earned interest – inflation) * (1-annual taxes) = annual FYM

    This means you need to be able to live on something like 1.5% of the principal per year. Certainly doesn't seem as attainable.

    Now influence, there's the thing: it is a currency that continues to pay dividends for as long as it is cultivated.

  • Playing with the spreadsheet, seems like the trick here is just to live modestly. Pay off a townhouse or condo, buy a civic, and spend 120k a year.

    It may not be super luxurious, but not having to worry about money for the rest of your life is a pretty huge benefit. Plus you can jump on the whole anti-materialistic bandwagon, and look down on people for owning stuff.

    Woooo snobbery!

  • I don't see why someone should spend $200k a year?

    Let's say that if they hadn't of been founding that start-up they would've been a developer earning $100k a year. Well that developer would not spend $200k a year, but would still a live a fairly comfortable lifestyle. Who needs to fly first class? Your assumptions are that the person wanting to retire at 30 is also an idiot with money and going to spending madly.

    If you live a fairly sensible life, it is entirely possible with a $4 mil exit.

    – If you then factor in investments into property / gold, then over the LONG term (e.g. when in their 60's) the value will have tracked inflation and be worth the same relatively.

    Don't get me wrong, I would happily take that exit, go do some things I'd love to do like travel and buy a porsche gt3 rs. However, I'd also be sensible.

    Finally it's only enviable I would get bored and want to start another project. Only this time, I have contacts in the business, I'm a proven entity and there's less risk on whether I succeed or fail at my idea.

    That sounds a dream scenario, which is why so many are striving to achieve it.

  • I don't understand why you're spending 200,000 a year? That is where the sensitivity largely lies. If you're spending < $100,000/year, you can clearly go much longer. Saying f@#$ you doesn't have to mean driving a Porsche. Some times a Honda is enough

  • I think you are taking the term 'retirement' to an extreme. Can't really imagine someone who sold a company for 20 mil to not make any more money for the next 50-60 years. Can be an Advisor, Consultant, be on the Board of Directors, angel investor, do another startup etc, making more money in the process.

    The FU money is simply a backup, so you control what you want to do. No need to do random consulting, etc to fund your ideas.

  • I think a lot of this depends on whether you already own your residence, or if the $200k/year spending is due to a house payment. If you own, there's no reason your yearly spending has to be $200k, even if you have a couple of kids in private school or college and live in a place with a lot of tech money in the market. Property taxes are effectively capped in California, so the yearly outlay for a pretty nice house isn't the end of the world.

    That said, someone who's 30 probably doesn't own, and is likely to run out of money right along your time frame if they're also tending a 15 or 30-year mortgage. So, bottom line, I'd call this f-you money scenario possible if this is the founder's second exit and they've already paid off the house and their student loans with the first.

  • I want to like this post, especially for the second paragraph. But it seems to me that the numbers are based on a bad expectation, that being that people violate the disclaimer “DON’T love the idea of living rich AND being retired. You can live rich on $5m OR you can retire early with $5m– but you sure as hell aren’t going to do both… for long.” And I don't know who those people are. I'm one of the people who would go austere with FY$ so that I can pursue my interests regardless of how much money they do or don't earn, but all of the rich-living people I know are workaholics that I'm not sure can imagine retirement before they're done with at least their fifth little high-profit empire-building career. So who would build and sell a successful business, but not have a clue on how to run their household budget?

  • Good point, but I differ on what “fuck you” money really means. I sold my first startup before I was 30, second went public when I was 34. I retired for 5 years, started a third. Now I'm back to New York looking for something new to do — another startup, VC, not sure yet. But, the “fuck you money” enables you to do what you WANT rather than what you HAVE TO do to make ends meet. It equates to freedom of choice. If you are doing what you want… what you really want, then consider yourself lucky and not needing that money at all. You're already where most people want to be.

  • I sold a company for $10M, walked away with $6-7M (after taxes, stock market downturn, and paying off the mortgage).

    My financial advisor is telling me I can afford to spend $120K with 90% portfolio survival rate to age 100. He's assuming 4.5% avg stock market return with 9.9% std dev in a monte carlo simulator.

  • be “sensible” and start by taking a normal carrera s over the gt3 rs. the clutch is SUPER heavy on the rs. I'm a big guy at 6'4″ 250ish and my left quad was worn out after 20 minutes running around town.

  • Actually, the lesson I learned from this is that one should invest some time in learning about how to manage investments so one can do a lot better than money market fund rates…

    but perhaps i misunderstand… 😉

  • It's worth remembering that 1.5% of $4 million is $60k. That's the 80th percentile for income for single earners. (More like 60th percentile for households.)

    So if you can restrict yourself to “only” living better than 60-80% of Americans, $4 million is plenty.

  • You would be bored to death if you haven't carefully thought through life after exit. The goal is not to retire but to live in the lifestyle of your dream. dream could be working on the next startup, traveling around the world, while not to worry about finance. One must plan that out ahead of time and have a clear vision what kind of lifestyle would you will have. That You could just live comfortably with <100k a year.

  • I totally agree. But what if you want to work on what interests you and
    that doesn't happen to be a money making enterprise? Maybe what you REALLY
    love is writing poetry. Or raising foster kids.

    But yeah, if you want another job or to start another company (my personal
    choice), you're well positioned to do so… As long as it will make you

  • Also, you boosted inflation 44 basis points over a 10-year average to be conservative. Put another way, you pushed inflation up nearly 20%. That would be fair if you compared with bond & equity returns over a period with similar inflation (equity prices, bond prices, and inflation are related).

    A fundamental problem with this analysis is that you assume corporations will not be able to beat a 2% return over inflation for the indefinite future, and/or that their success will not be accessible an any investment instrument. If that's the case, nobody should retire, you should be buying livestock and heading for the mountains. Because that has never happened.

    In any case, you are omitting bonds and dividends, which makes this a bad analysis overall. I also agree that you should fire your investment advisor, who is apparently telling you that a non-inflation-adjusted 5% after fees is what you should expect from him, when inflation-adjusted long-term Treasuries are paying nearly 4%.

  • I personally agree…. Though I think a lot of people think they get to
    live rich when they are a millionaire– which isn't always true depending on
    whether your follow-on endeavors throw off cash.

    $200k for a family in San Francisco is not necessarily lavish. Toss in
    private school and college savings…

    But you can certainly live lean– move to a cheaper town, send your kids to
    state schools (the horror!), fly coach. There's study after study that
    shows that wealth and spending don't really correlate to happiness. 🙂

  • This formula is not the formula for staying retired. It's the formula for handing your heirs 100% of your FYPrincipal – taxes. In other words, this formula never draws down the initial principal except for the initial tax hit. This may be a valid goal, but it's not the goal the author states (otherwise he wouldn't need to estimate his lifespan).

  • Would your exit money be taxed as long term cap gain? Also, looks like you used 15%. If the dems let the Bush tax cuts expire, that number will go up significantly.

  • You also forgot capital gains tax on your initial $4mm exit, so take off another 15% right there…

    However, you also forget that you can become a professional investor with your $4mm and if you compound it at 8-10% / year, you'll be living large for the rest of your life off that.

    Plus, who wants to retire anyways. Anybody smart enough to create a $20mm company is going to have more great ideas and a burning desire to make things happen anyways. Which speaks to your original point, that the goal should not be to make money and retire but to change the world through entrepreneurship and innovation.

  • You also forgot capital gains tax on your initial $4mm exit, so take off another 15% right there…

    However, you also forget that you can become a professional investor with your $4mm and if you compound it at 8-10% / year, you'll be living large for the rest of your life off that.

    Plus, who wants to retire anyways. Anybody smart enough to create a $20mm company is going to have more great ideas and a burning desire to make things happen anyways. Which speaks to your original point, that the goal should not be to make money and retire but to change the world through entrepreneurship and innovation.

  • The spreadsheet has an error; it doesn't expect average annual inflation (cell C14) to be a percentage. So it says “2.56” when it should say “0.0256”. Alternately, you could change the formulas on the Data sheet to divide by 100, but this is a little easer for a random reader who wonders why they need trillions of dollars in a few decades.

  • True. If you have $4M and no house, you really have $3M + house (in the Valley).

    Unless you have a saintly wife who cares nothing of what kind of home she lives in, you can expect to spend at least $1M-$2M on a house. No wife if going to settle for a POS $500k house in the Bay Area if she's eyeing a $4M balance. Your only hope is to take your money and move to a more affordable area like Seattle, Bounder, or Austin.

    Also, you wouldn't have a mortgage. Doesn't make any sense. Avoiding interest payments is like 4% return risk free. Even with the deductibility of mortgage interest and theoretical higher return in the market (ahem, with loads of risk), it's still better to own your house free and clear.

    I'm in my 30's and have 2 kids. It's not hard to spend $200k/yr if you hire a cook to deliver food, eat out a lot, have a gardener mow your lawn, have 2 kids in day care, join a country club, shop at Whole Foods, shop at Nordstrom, rent a house for a month in the summer, buy new laptops and iPhones and other gadgets. It adds up fast.

  • Very good breakdown of what $4m gets you using traditional methods. Here is a thought: if you are smart and hard working enough to build and sell a company, you are likely to be smart enough to figure how to earn more than 6% Annual Return.
    The money market example can be used for people who inherit their money. I can name a few ways one can earn 10+% Return that adjusts for inflation with minimal risk.
    Keep your head up, 4.2m is plenty if you learn how to use it right.

  • I love the moral of the story, plain and simple, love what you do, do it because you love doing it, enjoy the ride and do not do it simply because of the money or potential payout of it.

    There was a 20 year study on MBA students (before anyone gets bent out of shape about talking about MBA's, forget that fact, it was just easier to track MBA students for the person doing the study). The study surveyed 1,500 students. Only 255 were following a career path based on their passions; the other 1,245 had accepted jobs based on the highest paycheck. At the end of the 20-year period, there were 101 multimillionaires—one from the group following their paycheck, and 100 from the group following their passion.

    In summary, Tony great post. Take the feedback for what it's worth from a guy that is on his third start up, failed once, hit a triple on his second and third is shaping up to be pretty sweet. I'd love the FU money, but I love what I do and enjoy the ride every day…really how much better does it get then to do what you love. Follow your passion, it might be hard work, but in the end it will pay off.

  • Hey my deposits are earning 6.5% with government backed guarantee, in a strengthening currency to boot. But you'd have to live outside the Federal Reserve ravaged USA to know that. I've also got some in a tax-effective hedge fund that has returned an average of 19.8% for the last 12 years, including all downturns, crashes, recessions and blowups. That's the college fund for the kids.

    Some seriously wrong assumptions in the model, but it does prove it's point. The point being, that if you get $4 mil payday, you better talk to someone who is qualified in wealth management and planning. There's no reason at all you can't turn that $4mm into $8mm by the time you're 40.

  • This post completely assumes that: retirement = doing absolutely nothing that generates any wealth except passive investing. Most founders who have an exit of the magnitude you are referring to will never have to work for money again (unlike the millions who *have* to work for money, because they either don't know what they love or are not good enough at it to make a living wage working on it full time).

    Thus, for the common sense meaning of retirement, 4MM is plenty and should suffice to not work for money ever again for the entire lifespan.

  • Totally agree.

    It seems like a lot of startup discussions that talk about payouts have “early retirement” as some sort of implied goal in mind.

    The irony is that early retirement means “not working” and therefore it also means not doing many of the things you love: working with great teams, building great products, getting deals done, learning a lot, etc. To most people who are really driven, not getting to do those things would be a kind of punishment…or at least really boring and unfulfilling.

    Retire? and do what? I can understand needing to have money to survive comfortably once you've reached an old ago, but an early retirement just seems like a waste of life.

    In my opinion, better goals would be: being able to dedicate oneself to philanthropy, being able to pursue even riskier/bolder ideas, or being able to do career change (without changing one's lifestyle) – etc….and anything else is kindof a waste of life. Laying on a beach sounds like giving up on humanity to me.

    I think the same people who think “thank god it's friday” may be the same ones who are aiming for an early retirement…and I'm not sure they have what it takes to be a successful entrepreneur.

  • I plan to work for a long time.. let's say that you have a startup that brings in a nice sum of money, instead of selling: why not just continue with the startup, but hire or rank up someone you trust to run the strategic and CEO duties; and you take a backseat passive role. That way, you still own the company, still have money coming in, and you will have basically be retired?

  • You should also add the money you'll spend to fight depression as a result of stop working in your thirties.

  • Believe me, I totally agree. But I think a lot of people think that having millions means owning a few houses, a nice boat, a few sportscars, fancy educations for the kids, etc.

    If permanent retirement was really my goal (or permanent “working for other things than money” phase to avoid the “retirement would be boring” argument), I'd dial down as far as I needed to go.

  • The issue persists if you nudge the CAGR up to 7%+ (depending on how conservative you want to be with inflation). How many wealth managers would guarantee more than that across an entire portfolio? Better returns are available with risk– but you're not going to put the bulk of your millions in high-risk ventures. I'm not advocating for a money-market-only portfolio… There's a pretty well-written playbook for “how to protect and grow a pile of money”, but I don't know any rich folks that expect double digit returns across their ENTIRE balanced portfolio.

  • There are a few challenges to that. First, you need a startup that throws off large amounts of cash, predictably. Second, how long will that last? 10 years? 20? Third, how volatile is that revenue?

    And the biggie– you better not have any other co-founders/investors… Because they'd probably rather see cash plowed back into the business to fuel more growth rather than just going to fuel your lifestyle.

    That said, with the right circumstances, a cash business is great. I had a friend who bought a bunch of laundromats (great cash businesses). I personally have a couple of rental properties (which are profit generating “businesses”).

  • I can think of all SORTS of ways to generate nice returns. But across an entire portfolio with various asset classes? Of course, you could throw your whole wad into one asset class that you think is an opportunity and MAYBE get your 10%. I think that's what a lot of people did with stocks in the 2000s (which is why a lot of retired people have become “unretired”). Everyone thinks that once you get rich you unlock doors to generate higher returns without meaningful risk. When you have wealth, the playbook generally calls for a balanced portfolio with a risky portion.

    The few rich folks I know aren't seeing double digit returns (or anything even vaguely close to it).

  • It's a spreadsheet with variables. You can put in what you want.

    I was fairly cautious with with the inflation # because I personally believe we're going to have a problem there. You can drop in the average for the last 10 years and it doesn't change things tooo much.

    Regarding return, feel free to nudge it up to whatever you think a portfolio balanced across asset classes will getcha. I wasn't ignoring bonds/dividends– I was just saying “here's the field for returns”. The other fella I quoted mentioned money markets. Obviously, any wealth manager would have you pretty diversified in a “protect but grow” strategy. With that strategy, what kind of return would you expect over 10 years? 20?

    I'm not too bullish on the US economy over the next 10-30 years, myself.

  • On the mortgage front, I remember when my parents retired they asked their money manager if they should pay off their house. He said the instant they did, he'd advise them to take a mortgage out on it, based on the idea that it's the cheapest money you can get AND the interest is deductible. So if you owned a $1m house, take $1m out of it (4.5% mortgage) and find a way to make 4.5% on it.

    Of course, this was a decade ago where you just about couldn't HELP but make that in the stock market. Would be interesting to see if folks advised that today.

  • Thanks for the comments. If one wants to be an average investor, maybe it makes sense to be speaking of wealth managers, or that more return involves more risk? (perhaps from CAPM theory, which is based on flawed assumptions that lead to flawed conclusions)… However, if one is interested in being above-average (really, the one place to 'play' in markets), there are certainly many double-digit return investment options available, esp. for those thinking internationally. A lot of top hedge fund owners would consider it an easy challenge to produce 10%+ returns on a fund as small as a few million, imho. We should aim to be average asset managers as much as we aim to be average coders… (amongst other items, the equity and other traded markets are not the only place in which one can invest)

  • Excuse me, but how many people actually sell their startups for $4M at the age of 30? I'd say a handful. Fact is, $4M is a lot of money when it goes straight to your bank account. I wish I had such “dillema”, retire or not, with 4 million in bank, LOL. But my real point is, I can't imagine making a few millions dollars accidentally, most cases you'll make that much money ONLY if you have a love & passion to what you do.

    I enjoyed reading this post but I find it very very THEORETICAL.

  • I agree and I think that's an important point.

    But the fact that a lot of startuppers do it BECAUSE of the (very rare) $4m
    exit isn't theoretical. My point is that, not only is it rare– it's not as
    life changing as you might imagine unless your magnitude is well above the

  • “spend 120K a year” is not what I would consider “living modestly”!

    To me, living modestly is more like “spend $20,000/year”. Honestly, you could do a lot worse!

  • “No wife if going to settle for a POS $500k house in the Bay Area if she's eyeing a $4M balance.”

    I would never settle for a wife who controlled my expenditures.

  • If your single and your car and house are paid off, for sure. However, if you're married and have children, I doubt that 20k is going to cut it.

    I think we agree fundamentally, you can live a lot skinnier than 300k a year and be just fine.

  • Actually I kind of need the trillions right now – is there a tweak for that? Well, ok, I can tighten my belt and make it billions.

  • You`re simple investing your money in the wrong place. In Brasil you`ll have a return of 10%. So, the secret is to learn to be a good investor and not to put everything in the same basket. Part of this is know different kinds of investments, their possible returns and risks.

  • The flaw with your argument is that after you own a house and a car, it is REALLY hard to spend $200k/year consistently. More like $60k/year when you are treading water in retirement mode…

  • No living on $120k is pretty basic. If you're smarter, better connected, and harder working than 99.9%+ of the population, what's odd about wanting to make more than 60th %ile income?

    In mos societies 60th%ile income = starving to death

  • Studies by mendicant nuns and malicious rich people who want less competition for positional goods.

    Speaking from personal experience $1.5M a year is comfortable but not serious money, so $200k in perpetuity is truly nothing.

    You aren't factoring in running multiple properties (nice house in major metro, nice summer house near major metro, place in Florida/Caribbean…) or anything.

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