Strategies for managing your investment portfolio as a founder — beyond your startup equity

If you’re fully immersed in building your company — investing your energy, time, and money — but are starting to consider how to also manage a personal investment portfolio, you’re in the right place. Like many founders, you may be under-diversified, facing liquidity pressure, and unsure where to begin. 

Your startup equity isn’t a personal investment plan. So, how do you begin managing personal investments as a startup founder? Learning how to invest beyond your startup can feel like new territory, but it doesn’t have to be confusing. 

In this article, we’ll explore why founders need to think differently about investing and why a mental reframe is in order. We’ll walk through the typical investment mistakes founders face and share high-level perspectives to help you think more holistically — and confidently — about your personal wealth. 

There’s plenty of introductory investment advice floating around on the internet, but, as a founder, a lot of that advice may not apply directly to your situation. Starting and getting a business off the ground is an extraordinary feat — and an extraordinary financial risk. This impacts how you build wealth outside of your startup, too. 

The largest investment you make may be in your business. However, that equity isn’t liquid and may not be for years. This means you have to be more intentional about your liquid assets (cash or investments you can easily access or sell). Your risk is concentrated into one basket (both your money and your time), so it’s important to counterweigh that by diversifying your personal investments. After all, having delayed liquidity can put more financial pressure on you. 

While most people invest to grow their assets, founders often have additional goals beyond that. You might want to reduce financial risk, support business longevity, and create more options for yourself. Investing for founders isn’t just about maximizing returns, it’s also a strategy for ensuring that your business isn’t the only financial vector in your life.

Investing and personal finance for entrepreneurs is a learned skill. Be aware of these common investment mistakes that may present themselves on your journey:

• Ignoring non-startup investments entirely: It can be tempting to put your full financial focus on your company, but this creates added risk, since your equity isn’t a liquid asset.
• Overinvesting in crypto or trend assets: Overinvesting in crypto, AI tokens, and other trend assets can magnify risk, rather than diversify your portfolio.
• Not planning for tax surprises: Taxes can sneak up on you, and nobody enjoys tax surprises. For example, secondary sales trigger capital gains, so you’ve got to plan for these types of tax bills.   
• “I'll figure it out after the exit” mentality: Sudden liquid wealth after an exit can be dangerous territory, if you don’t have a plan in place. Without proper investment planning, you may also miss tax-efficient structures.
• Being over-indexed in one area: If you have too much cash tied up in your business, your financials are fragile. A healthy portfolio should be able to withstand market shocks. 
• Going by your gut feeling: Your intuition may have served you well in business, but investing is a data game. Your skills in running a company may not transfer to understanding the markets.

Effective investment and financial planning for startup founders involves changing the way you think about your finances. Remember, as a founder, your risk tolerance and your access to liquid assets is quite different from that of the average investor. As a result, you’ll want to consider these steps.

Treat startup equity as your “moonshot”

Your startup equity is a highly concentrated, illiquid asset. When you already have a moonshot, you don’t need three more. This means the rest of your investment portfolio should help reduce the risk of this investment, not add to it. 

Balance with “safe harbor” assets

The “safe harbor” part of your financial portfolio keeps you grounded, no matter where the moonshot lands. Use index funds, savings, real estate, and similar assets to create stability and resiliency — and enable you to take calculated risks with your business. 

Plan liquidity as personal runway

You likely spend a lot of time thinking about the company’s runway, but what about your own personal runway? This is how many months you can cover your baseline expenses without any new income. Having a personal runway helps you improve the business decisions you make, since you’re not fueled by the fear, desperation, or pressure that can come with having just one financial buffer.

These common investment strategies for founders can help jumpstart how you think about your personal portfolio.

1. Separate your personal and business finances

If you haven’t already, make sure you have separate accounts for your personal and business finances. Untangle any overlap, so there’s a clean separation. Track your personal net worth apart from your business.

2. Audit your current allocation

It might feel uncomfortable at first, but it’s critical to review your personal investments to determine what your holistic financial picture looks like. Look at everything: your startup equity, cash, real estate, and beyond.

3. Set personal liquidity goals

Many investors cover approximately six to 12 months of living expenses with an emergency fund that contains liquid assets in accounts, like high-yield savings or money-market funds.

4. Start small

Investing doesn’t have to be intimidating. Consider opening a separate personal investment account and automating modest recurring contributions to diversified and low-cost vehicles, such as index funds and mutual funds.

5. Reduce decision fatigue

Automating your investment process and consulting with experts can be effective ways to manage your personal investments — and keep your attention focused on your business.

6. Be prepared to change your investment strategy

As your income stabilizes and your risk tolerance evolves, your asset allocation strategies will need to adapt, too. Revisit your investment plan on a recurring basis, such as every six months, to determine whether it still works for your needs.

7. Invest in yourself

Investment isn’t only about dollars and cents. Consider continuing education, coaching and mentorship, and industry training as part of your larger personal finance plan. This strategy can help you enhance your business and your investment portfolio, as well as support your mental well-being.

How will you put your investment plan into action? The approach you take will depend on a range of factors, such as your level of investment knowledge, available time, and appetite for risk. Here are three common options. 

DIY investing

With this approach, you’ll have the most control but have to invest the most time. If you go this route, ensure you have the bandwidth and the discipline to see it through. You can learn investment strategies using online resources as well as educational content from banks and brokerage firms. 

Robo-advisors

These online services use algorithms to manage your portfolio based on your risk tolerance and financial goals. Robo-advisor service is typically offered at a lower cost than working with a financial advisor, and you can start investing with a small amount. Keep in mind that robo-advisors can’t provide you with holistic financial advice or strategies. 

Financial advisor

If you’re looking for personalized portfolio management that takes into account your entire financial picture, this is the way to go. Financial advisors can help you manage your investments, as well as other aspects, such as estate planning, tax planning, and retirement, depending on their scope and qualifications. This is the most costly option of the three. 

Regardless of which approach you take, you can change it as your investment needs evolve. If you’re starting off DIY but find it too time-consuming, move on to robo-advisors. Or, if you need holistic financial support, consider working with a financial advisor.

You’ve invested so much — literally and figuratively — into your startup. Now, it’s time to focus on your personal investment portfolio, so you can increase your assets, reduce financial risk, and create a resilient and stable financial future that’s ripe with opportunity. 

When you start thinking about investing beyond your startup, you can balance your financial portfolio with safe harbor assets that extend your personal runway and enable you to take more strategic and calculated business risks. 

Mercury’s personal banking is built for founders managing complex financial lives. Whether you’re thinking about your current personal investments and risk exposure or focusing on your long-term financial wellbeing, Mercury is a resource that sees and supports the whole you.