Is having a 'startup fund' a good idea?
Saving money for the future is a good thing. Whether spending those savings on a business venture makes sense, will depend on a few factors, including: (1) How much money you need that business to make [ie: will you be quitting your job and relying on the business for your sole income? Or will this just be a hobby you make some pocket change from?] (2) How much the money the business needs up front [some businesses, like simple web design consulting, might have effectively $0 in cash startup costs, where starting a franchise restaurant might cost you $500k-$1M on day 1] (3) How risky it is [the general stat is that something like 50% of all new businesses fail in their first year, and I think for restaurants that number is often given as 75%+] But if you don't have a business idea yet, and save for one in the future but never get that 'perfect idea', the good news is that you've saved a bunch of money that you can instead use for retirement, or whatever other financial goals you have. So it's not the saving for a new business that is risky, it's the spending. Part of good personal financial management is making financial goals, tracking your progress to those goals, and changing them as needed. In a simpler case, many people want to own their own home - this is a common financial goal, just like early retirement, or starting your own business, or paying for your kids' college education. All those goals are helped by saving money, so your job as someone mindful of personal finances, is to prioritize those goals in accordance to what is important for you. "I am asking because startups are super risky and 99% of the times you fail and lose the money. First of all, that 99% number is exaggerated. Only 96% of companies fail within ten years. But starting your own business is not a pure game of chance. It mostly depends on how good your business idea is and if you have the necessary skills and resources to succeed with it. Yes, there is luck involved, but a smart businessman can calculate the risks and possible rewards and then decide if a certain business idea is a good or a bad gamble. Also, a business failing does not necessarily mean that the business owner failed. A good business owner knows when to fold. A business might be profitable at first, but market circumstances might change at any time making it unprofitable. A smart business owner notices that early, liquidates the unprofitable business as quickly as possible and refocuses on their next business idea. Only those who can not let go of an unprofitable business or take too long to notice that it is failing are those who get dragged down with it. So should you have a ""startup fund""? Saving your disposable income is never a mistake. If you never end up starting a business, it will eventually serve you as a retirement fund. So yes, you should save a part of your money each month. But should you start a company with it? That depends on whether or not you have a business idea where you know you will succeed. How do you know that? When you answered yes to all of these questions, then you might want to consider it."
"Absolutely terrible idea(s) on many fronts. Firstly, why are you giving away equity at all? usually it's to attract people you otherwise wouldn't be able to hire (like extremely talented coders or business development managers) but normal employees? Bad idea. If you really want to give up equity, then make sure it's only realized (valued) once certain targets are met (i.e. sales/revenue/share price/investment etc). As for the nomenclature, they're not ""Co-Founders"" - that's typically reserved for the people that foundned the company, not just people who happened to be working for the company it started trading. Call them ""founding employee"" if you must, but they're certainly not founders. Why does this matter? If the company ever takes iff or you get investment, or you fire one of them or one just gets the idea to sue you, their position name suddenly REALLY matters, and by not being careful, they could win a substantial cut of your company in a lawsuit. there's even stories of employees ganging up on their bosses and they end up owning the company. I know someone that's been involved in high 8 figure suit for 7 years for exactly the same reason. So unless they're putting in startup capital or they're taking a serious hit on their salary in return for compensation in the form of equity, don't give anyone equity." Looks more like an idea for a business rather than an actual business -- especially since it hasn't even launched. That said, it does have its merits. What bank actually holds the deposit funds becomes irrelevant, and may actaully change from time to time as they forge better partnerships with different banks.  Think of it like a mutual fund -- the individual stocks (if there are stocks) in the fund are less important than the balance of risk vs. income and the leveling of change over the course of time. It offers services banks offer, without fees (at least that is the proposal) with the addition of budgetting capability as well. It does have downsides as well There is an increased level of indirection between you and your money. They propose to simplify the banking business model, but in fact are only hiding it from you.  The same complexity that was there before is still there, with the added complexity of their service on top of it.  It's just a matter of how much of that complexity you would have to deal with directly. With that in mind, I would reiterate that they are not a business yet -- just a proposed business model.  Even the sign up process is a red flag for me.  I understand they need to gauge interest in order to forge initial relationships with various banks, but I don't see the need for the 'invitation only' sign up method.  It just sounds like a way to increase interest (who doesn't like feeling exclusively invited), and is a bit too 'gimmicky' for my taste. But, like I said, the idea has merit -- I have my reservations, but will reserve full judgement until they are an actual operating business. "Thanks for disagreeing in a classy way. Seriously - as you can see, it's not that common!   Two points:   1. You wouldn't trade the (bad) experiences. People say that about being paralyzed. I said it about the douchebag ex-bf who stole my car. Doesn't mean you would recommend people do it, right? In fact, you'd probably steer them away from it. That's why I write what I write.   2. ""do something big, or fast, or perhaps manufacture something… these types of business need outside funding""  I don't disagree with you there, in principle. But the vast majority of startups who want to ""do something big, or fast"" are in fact not businesses. All the big high-growth startups are losing money -- pretty much EXCEPT Facebook. Groupon, Salesforce, LinkedIn, Angie's List, Yelp, Twitter… these are not profitable years later, they are not businesses, they are the essence of gambling.  It's just another part of the con.   Some of them have or will go public, spreading their lack of profitability around the stock market… just like a package of sliced up bad mortgages. Others will get sold to a bigco who bought them for some OTHER reason, but not because they are a profitable, smart business. And the rest will shutter.  It's part of the con." He also says if you just have $20,000 laying around it's a good idea to use that chunk specifically for investing in good ideas and start up. The problem is investing that much money is not something most people can do You will probably never see it.  The startup at some point may start issuing dividends to the shareholders (which would be the owners, including you if you are in fact getting equity), but that day may never come.  If they hire others with this method, you'll likely lose even that 5% as more shares are created.  Think of inflation that happens when government just prints more money.  All notes effectively lose value. I wouldn't invest either, most startups fail. Don't work for free on the vague promise of some future compensation; you want a salary and benefits.  Equity doesn't put food on your table. "Goodness, I wish I could put away half my paycheck. Not to rain on your parade, but a 6-month emergency fund is not quite ""very good.""  It is the typical starting time frame.  Personally, I would feel more comfortable with a 2+ year fund.  That is a bit extreme, but only because many of us can barely seem to make it around to a 6-month fund.  So, we focus on the more attainable goal. I say you do all three.  Make saving money your priority, but do enjoy some of it; in moderation.  Do not plan on making any big purchases with it, but know that you will eventually be able able to do so.  Money not spent is worthless Idle money is worthless.  Make some -- hopefully -- prudent investments with some of your money.   A small portion of that investment portfolio can/should be in speculative investments.  Maybe even as much as 20% of your investment portfolio, since you are young.  Consider that money gone and you will hopefully be surprised by one of those speculative investments.  That is the crucial point: earmark a small portion of your investment portfolio which you are willing to lose.  However, do not gamble with it.  Research the hot emerging technologies, for example, and find a way to make an investment. So, in summary: You may have more money that you know what do with, right now.  However, that does not mean you need to go out and spend it all.  Trust me, as you get older you will think of plenty of good uses for that money." "The value will certainly fluctuate up and down (but on average gain more than a savings account), but so long as you have enough liquid assets for emergencies, then yes, it's a perfectly good alternative to savings accounts. how risky, in general, are Index Income Funds. How are you defining ""risk""? If you mean ""probability that I'll lose it all"" then it's virtually zero.  If you mean ""how much the value can fluctuate"" then it's certainly not risk-free, but it has less volatility that individual stocks.  If you take the S&P 500 as a proxy, you might expect the change in value over any given year to fluctuate between -30% (like 2008) and +40%, with an average change of around 8%. There will be funds that have less volatility, but produce less return, and funds that have more volatility but higher average returns." Similar premise, yes. It's an investment so you're definitely hoping it grows so you can sell it for a profit/gain. Public (stock market) vs. private (shark tank) are a little different though in terms of how much money you get and the form of income.    With stocks, if you buy X number of shares at a certain price, you definitely want to sell them when they are worth more. However, you don't get, say 0.001% (or whatever percentage you own, it would be trivial) of the profits. They just pay a dividend to you based on a pre-determined amount and multiply it by the number of shares you own and that would be your income. Unless you're like Warren Buffet and Berkshire who can buy significant stakes of companies through the stock market, then they can likely put the investment on the balance sheet of his company, but that's a different discussion. It would also be expensive as hell to do that.    With shark tank investors, the main benefit they get is significant ownership of a company for a cheap price, however the risk can be greater too as these companies don't have a strong foundation of sales and are just beginning. Investing in Apple vs. a small business is pretty significant difference haha. These companies are so small and in such a weak financial position which is why they're seeking money to grow, so they have almost no leverage. Mark Cuban could swoop in and offer $50k for 25% and that's almost worth it relative to what $50k in Apple shares would get him. It's all about the return. Apple and other big public companies are mature and most of the growth has already happened so there is little upside. With these startups, if they ever take off then and you own 25% of the company, it can be worth billions. If you have a long enough time horizon, investing in the stock market while in a bad economy can turn out to be a very smart decision. If you need access to your capital in the short-term, 1-2 years, then it is probably a bad decision. If you have the ability to ride out the next few years, then you may be buying securities at an extremely low valuation. Take AAPL and MSFT for example. These are both technology stocks, which is by far the hottest sector in the economy now, and you can buy both of these companies for less than 13x earnings. Historically, you would have had to pay 20x or higher for high tech growth companies, but today you can buy these stocks at discounted valuations. Now AAPL may have a large market capitalization and a high stock price, but the simple fact is they are growing their earnings very quickly, they have best in class management, and they have $100 billion in cash and $50 billion in annual cash flow generation and you can buy the stock for a historically low multiple. "First, you don't state where you are and this is a rather global site.  There are people from Canada, US, and many other countries here so ""mutual funds"" that mean one thing to you may be a bit different for someone in a foreign country for one point.  Thanks for stating that point in a tag. Second, mutual funds are merely a type of investment vehicle, there is something to be said for what is in the fund which could be an investment company, trust or a few other possibilities.  Within North America there are money market mutual funds, bond mutual funds, stock mutual funds, mutual funds of other mutual funds and funds that are a combination of any and all of the former choices.  Thus, something like a money market mutual fund would be low risk but quite likely low return as well.  Short-term bond funds would bring up the risk a tick though this depends on how you handle the volatility of the fund's NAV changing.  There is also something to be said for open-end, ETF and closed-end funds that are a few types to consider as well. Third, taxes are something not even mentioned here which could impact which kinds of funds make sense as some funds may invest in instruments with favorable tax-treatment. Aside from funds, I'd look at CDs and Treasuries would be my suggestion.  With a rather short time frame, stocks could be quite dangerous to my mind. I'd only suggest stocks if you are investing for at least 5 years.  In 2 years there is a lot that can happen with stocks where if you look at history there was a record of stocks going down about 1 in every 4 years on average.  Something to consider is what kind of downside would you accept here?  Are you OK if what you save gets cut in half?  This is what can happen with some growth funds in the short-term which is what a 2 year time horizon looks like.  If you do with a stock mutual fund, it would be a gamble to my mind.  Don't forget that if the fund goes down 10% and then comes up 10%, you're still down 1% since the down will take more." GENIX was started by Joel Greenblatt back in 2013, so it is a real life test of the strategy. GENIX got off to a great start in 2013 and 2014 (probably because investors were pumping money into the fund) but had a terrible 2015, and lagging in 2016. Since inception it has under-performed an S&P 500 index fund by about 1.90% per year. The expense ratio of the fund is 2.15%, so before expenses GENIX still has a slight edge, but Greenbatt is doing much better the fund's investors. I think GENIX could be an OK investment if the expense ratio were reduced from 2.15% to around 0.50%, but I doubt the fund will ever do that. "What do you mean by ""handful"" and ""VERY well-funded""?  There are a plenty of HFT shops out there that do just fine.  But what zenwarrior said before about the effect of fund size is especially true for HFT, since market capacity is usually the limiting factor when making trades." You are wildly over-estimating your taxes.  First, remember that your business expenses reduce your gross income.  Second, remember that taxes are progressive, so your flat 35% only applies if you're already making a high salary that pushed you into the higher brackets of US and CA. I think the deeper problems are: 1) you are expecting a super early start-up (with no finished product) to pay you the same as a steady job, including health insurance, and 2) you are expecting Kickstarter to independently fund the venture. The best source of funding is yourself.  If you believe in this venture and in your game design abilities, then pay for most of the costs out of your own savings.  Cut your expenses to the extent you can. You may want to wander over to startups.SE to get more perspective and ideas on your business plan. "Chris - you realize that when you buy a stock, the seller gets the money, not the company itself, unless of course, you bought IPO shares. And the amount you'd own would be such a small portion of the company, they don't know you exist.  As far as morals go, if you wish to avoid certain stocks for this reason, look at the Socially Responsible funds that are out there. There are also funds that are targeted to certain religions and avoid alcohol and tobacco. The other choice is to invest in individual stocks which for the small investor is very tough and expensive. You'll spend more money to avoid the shares than these very shares are worth.  Your proposal is interesting but impractical. In a portfolio of say $100K in the S&P, the bottom 400 stocks are disproportionately smaller amounts of money in those shares than the top 100. So we're talking $100 or less. You'd need to short 2 or 3 shares. Even at $1M in that fund, 20-30 shares shorted is pretty silly, no offense.  Why not 'do the math' and during the year you purchase the fund, donate the amount you own in the ""bad"" companies to charity.  And what littleadv said - that too." Sorry, I didn't mean to knock your post.  I do think you have valid points.  I think it's great to see discussions on the pros and cons on the VC/Start-up world.  My previous work experience was at a start-up that made it big (sold 90% to News Corp at $400mm valuation), but was funded by angel investors, so it was a different situation.  I'm currently getting my MBA now so am looking at the space from both the VC perspective and the Start-up perspective.  VCs can provide real value to start-ups, and they can also harm them.  However, no one is forcing the start-ups to take VC money; most do because it provides a higher probability for a faster path to success.  The investment doesn't come free obviously, as you pointed out.  The hours are horrible and you lose significant control.  In many situations founders are taken away from the main leadership role.  That doesn't seem fair.  However, if someone sold the voting shares of their company, they are opting in for that risk.  The truth of the matter is that a lot of the people who are amazing at the ideas that birth the start-ups are horrible at the day-to-day management.  Sometimes VCs step in and make the necessary changes to ensure the best chance at company profitability.  Is it fair? Yes.  Does it suck for the person ousted, absolutely.  It's an oversimplification to say this is all bad or all good.  It all depends on the situation.  However, yes, there are VCs who are predatory and use their superior knowledge of how business, financing, and whatever else work to extract as much as they can from their portfolio companies.  Yet there are also some who honestly love the industry and want to help companies grow.    Your article's stance is good because it prompts a discussion.  However, as I originally felt, it does not do it as effectively as it could in my opinion.  That's awesome you got a ton of re-tweets, but as you say on your blog, it's about substance, not the glitter and rainbows.    Edit: Voting brigades don't count as glitter and rainbows?