
How tech’s young millionaires spend their money - Futurebot
http://business.financialpost.com/2013/08/05/how-techs-young-millionaires-spend-their-money/
======
nlh
_...Now 33, McFarland has a 3-year-old and a newborn and no longer has to
think about his student loan: His company has US$17.75-million in venture
capital investment. While he doesn’t consider himself retire-now rich, his
piece of the company affords him what he calls “breathing room” and what other
people might call wealth..._

 _...Scribd took off and now has millions of dollars in funding..._

I know this has become a meme, but it's being done here much more blatantly
than I've seen in other articles.

It doesn't have to be said (but I'll still say it): Venture Capital funding
does not by itself mean that either A) the founders are millionaires or B)
that the company is successful.

It's a vote of confidence. It's a chance to be successful. And it's exciting
and can be a great step along the path of success.

But the notion that "raising VC is the goalpost of startup success" is a
notion that probably does more harm than good.

~~~
lsc
>It doesn't have to be said (but I'll still say it): Venture Capital funding
does not by itself mean that either A) the founders are millionaires or B)
that the company is successful.

How does that work, then? I mean, if I'm managing tens of millions of dollars
in someone else's money, I'm going to want some compensation for that. You can
afford it.

Hell, personal financial advisers generally take 1%, right? that'd be north of
$177K right there. And surely a startup founder does more work than a personal
financial adviser.

I mean, I don't have insight into what founders of funded companies get
paid... but I find the idea that they are worrying about student loans, well,
to be pretty unlikely.

~~~
freyr
_> How does that work, then? I mean, if I'm managing tens of millions of
dollars in someone else's money, I'm going to want some compensation for
that._

When somebody invests in your fledgling company, it's typically not a
congratulations for getting out of the starting gate. It's money that allows
you to grow your business. You could have payroll, marketing, servers, office
space, legal fees, etc. and depending on the business, you can burn through
millions extremely quickly.

Not to say you can't pay yourself a decent salary, but you're probably not
living high on the hog. If you're stashing the money in your personal bank
account (and I'm sure some have), that's likely to make people very unhappy.

And, yes, a startup founder might work more than a personal financial advisor.
But he also stands to gain much more for his work, if all goes well, down the
line.

~~~
greghinch
$17.75 million invested is probably beyond the stage of "fledgling". Perhaps
"middling"? I will agree that founders' large salaries should come from
profit, not investment.

Also, you have to imagine that the valuation of the company is somewhere in
the neighborhood of 3-4x the amount invested, if not more depending on how
recently the last round was. And as a founder it seems reasonable to assume
around 10-15% equity remaining after a couple rounds, also assuming a couple
other founders with similar stakes. That pegs his shares' value anywhere from
$5-10 million. It may just be on paper, but you still count it in "net worth",
a term readers of the Financial Post are probably most interested in. And
definitely warrants, if the product is successful in its own right to any
degree, feeling a bit of "breathing room".

------
nugget
Perhaps they don't collect luxury items as status symbols because to start,
scale and sell a successful company is the ultimate status symbol of them all.

It's a silly anecdote, but long before I sold my first company, when I was
just another college dropout eating from the dollar menu and paying for gas
with spare change, I really, really wanted a brand new BMW M3. To say I lusted
after that machine would be an understatement; to me, that sexy car epitomized
success and oozed the kind of vibe I wanted to send out.

Once real success arrived, however, I was surprised to find I really didn't
care any more. I ended up with a used Toyota Camry because I could drive it
around the city without worrying about scratches and dents.

~~~
shin_lao
I have a similar experience. When I started my business, I really wanted an AM
V8, but now that I can afford it, I don't care that much.

~~~
joshu
Same. Not really an exciting car to ride, unfortunately. I heard the V12 feels
completely different.

I think fantasizing about cars might be more fun than owning them.

~~~
dsschnau
I've noticed this too. As I get closer to 'buy whatever car you want' kind of
money, I dream less of the shiny new muscle and I'm getting more interested in
a used Miata I can beat up on a track.

~~~
joshu
fwiw i find that "well set up for the track" means "unpleasant as a daily
driver" \- i'm trying to set up a car that i can drive to the track and back.
i am fast enough that i need harnesses, which aren't compatible with the
regular seats, etc etc etc.

also, check this out:
[http://sfbay.craigslist.org/eby/cto/3985270257.html](http://sfbay.craigslist.org/eby/cto/3985270257.html)

it's nice to pass people. it's more fun when you can do it with 200 less
horsepower.

------
at-fates-hands
>>>These children of the boom 90s also aren’t so into conspicuous consumption.

Except that. .

>>>Also, there’s a bit of a focus on cars, but in a smart way. Merrill Lynch’s
Hogan says, “I had a client come in and say that he bought a Tesla car – but
he had also bought shares in the company. And he told us that he made enough
profit on the shares to cover the cost of the car.”

So if I buy a 100K car and invest in the company, then that's smart?
Otherwise, it's considered "conspicuous"?? If you drop 100K on a car, it
doesn't matter how you bought it, it's still a 100K purchase on a car.

~~~
jacques_chester
I bought a part stake in a horse, and also wagered on it. The horse won and I
made my money back. It's a bit of a focus on horses, but in a smart way.

~~~
krrrh
Hedging would be prudent, balancing risk and wagering on the other horses. If
your horse loses, then you can limit your losses with your other winnings. If
it wins then you can cover the money you put on the wagers. Over the long term
that's smarter than putting everything on one pony.

------
edandersen
“The typical software engineer isn’t dreaming of the day he can quit the rat
race. They use their money instead to gain a little bit of control over what
they work on and what they do.”

The more money you save, the more leverage you have in avoiding work that
sucks.

~~~
adamnash
100% correct. The original quote was "...gain control over what they work on
and who they work with."

------
davidu
I know both Trip and Josh -- I don't think this article reads well on either
one. My guess is Wealthfront needed some quotes from people and they are
friensd with the WealthFront team.

This whole story reads like a PR job. All the stats were just too convenient
(and useless).

------
LVB
_“The whole idea from the 80s — that you’d make some money and use that money
to make more money — this current generation isn’t looking at money that way,”
says Nash._

Yeah, I remember those crazy, reinvesting 80s. Interest, dividends, buy low
sell high. WTF were we thinking??

This Nash guy has really convinced me that I should entrust my financial
future under the auspices of his Wealthfront.

~~~
Wingman4l7
"I just want to say two words to you. Just two words."

"Yes, sir."

"Are you listening?"

"Yes, I am."

"Financial derivatives."

------
rayiner
At least the paper millionaires of the last Silicon Valley bubble had somewhat
liquid publicly traded stock.

~~~
jacques_chester
That's one reason why this one is lasting so long: nobody is being burned in
public, everyone can smile and carry on.

------
tptacek
If only they really were spending money on intergalactic travel.

------
gcb0
It's interesting how <100% change in annual salary (50k to 100k) is the
ultimate hallmark of 'doing well' across the country, when the cost of life
can vary >400% from one place to another.

------
jacques_chester
N = 2.

~~~
kcorbitt
And those two were chosen because they were clients of Wealthfront, which
likely was involved in the writing of this article.

------
epynonymous
i was expecting to see bentleys, cristal, and 100,000 usd hand bags, boring ;)

career freedom seems to be the major theme.

