Dear Founder,
Congratulations! Most of us never get to experience a big payday and many of us wish we could.
I decided to write a letter on dealing with sudden wealth because I have personally struggled with it as well as witnessed several colleagues who have had a difficult time managing this transition. I share this letter with you in hopes that you don’t have to experience all the turbulence that we did.
In reality, as great as it all sounds, things often become even more complicated when you have to manage this new wealth. Hopefully, for most of us, while money was necessary, it was not the reason we chased our life’s purpose.
First, it’s important to understand what’s what.
• You will pay a significant portion of your payday in taxes. Hopefully you were able to achieve most of your return as a capital gain. If not, if it’s straight income, as much as 50% (based on your state) can be taxed.
• Too often people who come into money lose it quickly. This is not an unfortunate reality limited to NFL stars and lottery winners. It happens to entrepreneurs, too.
• Markets change. Probably, the most painful things I’ve experienced have been when market forces exert themselves—and not in a good way. When the “bubble” burst in the early 2000s, so did some of my net worth. The same thing happened again in 2008–2009. It’s hard to think you have made your targeted or desired net worth, only to see it erode quite quickly.
• You need to find the right approach to navigate and manage newfound wealth. Many people work with financial advisers, but it’s important to understand that these professionals aren’t always working for you, though they say they are. I remember being excited when I was seeing my net worth grow due to my company doing well and some angel investment bets that had paid off. I had my money with a reputable big bank and soon I started noticing that there were lots of trades happening. I was paying hefty fees to my advisers for this kind of money management, yet the investments weren’t doing very well. I switched advisers to a group that gets paid based on my net worth. When it grows, their fees grow and vice versa. Our interests are better aligned.
Suddenly gaining significant wealth can also introduce unexpected dynamics with family and friends. Ultimately my wife and I made decisions together, including making college help available to every blood relative and their offspring. We also focused on providing experiences—family reunions or special events, such as attending Super Bowl games. Our thinking is that we want them to have fun and enjoy these great times together, but we also want them to keep working hard to ignite their own success and reach their own destiny.
Once our immediate family was taken care of, we started a family foundation to give back to the world. We founded it in 2004 (thank you, eBay) and after a few years of figuring out where we could make the most impact, we settled on helping underprivileged children get a college education. It’s been a lot of work to get it right, but also a source of joy and inspiration.
Congratulations on achieving a great return for all of your efforts and innovation! I hope you will find a way to celebrate this achievement and that you will be able to enjoy the impact of your effort for years—and hopefully generations—to come.
All the best,
Maynard