TOTAL ACCESS Resources

By: Micah Rosenbloom (CEO of Sample6 Technologies & Founder Partner at Founder Collective)

In 1999, my internet start-up was valued at nearly $100M. I thought I had it made. Like many of my contemporaries at the time, I rented a nice apartment near the beach and spent more money going out. I momentarily day-dreamed that I’d be ringing the NASDAQ opening bell.

It didn’t end up that way and when that world came crashing down in 2001, I ended up with less than $10K to my name. I learned the hard way that paper wealth doesn’t pay bills. I was forced to re-think how to think about finances, risk and exits.

Personal burn rate

For the scrappy entrepreneur, budgeting and saving is complicated. Many entrepreneurs are living paycheck to paycheck, or in debt. Early stage founders can make $60K or less.

The key is to live conservatively and maintain a low personal burn rate. Married entrepreneurs often deliberately diversify income streams whereby one pursues the entrepreneurial route while a spouse takes a lower-risk, steady-paying job. As a career entrepreneur, I’ve never owned a home, avoided lavish spending and invest conservatively. While others may think I’m cheap, I’m acutely aware that a big win is by no means guaranteed. Though I’ve had a previous exit, I’m very protective of my savings.

The equity/cash trade-off

My father, an attorney, would say “every hour I’m not working, I’m not earning.” Unlike high cash-paying jobs like those on Wall Street or in consulting, the entrepreneur must be at ease that it is a conscious ownership/cash trade-off. One’s equity interest in their start-up often is their savings.

Start-ups are, inherently, hit driven businesses. The entrepreneur has significant earnings volatility, yet greater upside. The shares one aggregates over his/her career may be worth nothing or millions of dollars, but this often takes years to find out. I advise young entrepreneurs to take a longer term, multi-venture perspective and to diversify the types of opportunities they pursue. In a sense, you’re your own career venture capitalist.

Risk tolerance and exits

Most entrepreneurs set out to build the billion-dollar business. Somewhere along the way they realize that it isn’t in the cards. Sometimes there’s an opportunity to sell the business and make good, potentially life changing, money. I’ve long believed in staging risk and preserving exit options along the way. Too many entrepreneurs, tempted by the ability to raise lots of venture capital, ended up with smaller returns than if they had sold earlier (perhaps my mistake at Handshake.com). I encourage founders to talk openly with their teams, investors and families about risk/return throughout the journey. Always believe you’re out to change the world, and build the next great big company. Just don’t spend like it.

Original post can be found here.

Micah Rosenbloom is an entrepreneur and angel investor. He is currently CEO of Sample6 Technologies – a venture building the “smoke detector” for harmful pathogens in the environment. He recently left Brontes Technologies, a company he co-founded in 2003 (and sold to 3M in 2006). Brontes developed a system that eliminates the “goop” in dental impressions with 3D scanning. As co-founder, Micah helped build the company from an academic project between MIT and Harvard, to Series A financing from Bain Capital, Charles River Ventures and Flybridge Capital Partners. Micah also co-founded Handshake.com (funded by Clearstone VP and SBC Communications), an enterprise software and consumer web company that sold online scheduling and pricing engines. Most interestingly, Micah worked for one of Hollywood’s premier talent agencies, Endeavor (subject of the hit TV series, “Entourage”). Micah received his BS from Cornell, his MBA from Harvard Business School and because of his experience at Endeavor, can fix any make/model of photocopier.  You can follow him on twitter @micahjay1.

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