

From Employee To Entrepreneur or Investor? - MrMan

I want to quit my job, but I am scared. I have enough money saved to possibly invest in other small companies or to pursue some kind of active investment strategy. I am a programmer, not a business person as such, and have never had my own company. Can anyone succinctly give some hints as to how they made the transition from employee to self-sufficiency? My instinct is to sidestep the operational risk that comes with direct involvement in a startup, by investing in other ventures. Is that an untrustworthy instinct?
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mgkimsal
Ultimately this comes down to 'it depends' (on your personality and skills and
such).

Personally, I'd 'invest' in your own business first - give that a shot.
There's obviously a lot of operational stuff you may need to get involved in,
but if you've got the money, outsource that. Hire people to do it, but retain
the control to direct them as you see fit. This would be similar to investing
in another company, you just likely won't have as much control over that other
company as you would your own.

On the other hand, investing in someone else's passion may be a better fit for
you. I'm not at the stage where I would take that approach - I prefer to have
too much control over things, and not sure I'd have that control investing in
someone else's business.

What sorts of businesses are you looking at?

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chipsy
It's (mostly) a tradeoff of time, investment size, and risk/type of risk. Your
investment strategy also determines your lifestyle to some extent. If you're
completely hands-off with your money, you may get bored very quickly.

If you're very distant from a company(e.g. a publicly traded stock) you are
only required to put money in a portfolio and start clicking "buy" and "sell."
All time apart from that is in the research and due diligence that will make
buy/sell actions profitable. This is simple enough if you're working with a
portfolio of large-cap, heavily traded companies.

But if you try to achieve a return similar to an early-stage startup on the
markets, you generally have to look at tiny companies with low information and
regulatory scrutiny; and the market for a penny stock is rarely fair and
orderly, it's more likely to become an explosive, melodramatic war involving
some combination of institutional manipulators(hedge funds and colluding
market-makers), a corrupt company CEO, paid promoters and bashers on message
boards, and stock flippers that rush in trying for the quick money. i.e. it's
great if you enjoy theatrics with your gambling, or wish to learn the feeling
of being a bag-holder.

(I excluded day-trading from this analysis; it's both so difficult to learn
that most people dismiss it out of hand, and - once you do have a system, and
emotions are out of the way - it's also kind of boring as a way to grow your
investment. But if you approach it extremely patiently and systematically, it
can work very well.)

So then, if you want a better chance of early-stage returns, you can probably
do well as an angel. To do so means giving up a lot more time to meet the
company leadership and work out a deal and monitor them, and it means having
the funds available to have accredited investor status(which you presumably
do). I'm not one to comment further on this, since I'm not in a position to be
an angel. But I've tried everything else.

If you want the most direct control over your financial destiny, want to learn
_all_ aspects of business, and want to continue doing some kind of work, you'd
do best starting your own company. It doesn't have to be a web startup. It
doesn't have to use a lot of initial capital either. You just need to be
focused enough to create the all-important "something people will want" and
not stray away into a hobby project or pure research. This can be as simple as
buying up a form of property(physical, IP, etc.) that you think will gain
value, and then working or paying some money to perform the actual
developments/improvements; done well, this could be a lot less risky than
betting on an idea and some founders.

The best part about the start-a-company option is that your risk is more
incremental. You can try lots of things, as long as you don't spend too much
on any one of them, and the whole time you are going to make money, learn
something, or both, which is a great feeling. And you can pair up a business-
building strategy with investments in public markets fairly easily, since
money in the market is generally pretty liquid.

