I recommend this book to people over twenties who want to become rich (so, everyone). This book is very well written, highly engaging and it actually holds a special place in my heart. This is the first book I've read in awhile, and I'm so glad that I somehow landed on this book.
I was counting the days till the reopening of the library next to my workplace (bloody COVID), and it finally reopened just recently. So I happily walked in with my mask on and immediately looked for finance section. As I was browsing through what books to read, the title caught my attention: The 10% entrepreneur: live your startup dream without quitting your day job.
That was one of my plans - having a side hustle. After looking at the back cover of the book and doing some "screening" I decided to go with this, and I don't regret my decision.
This book made me reflect back on what I've been doing up till now to become a 10% entrepreneur (prepping myself up as a full time junior accountant and a side hustler), but also this book made me have faith in humanity again.
(not going to mention who it was but) one of the characters from the book really inspired me. I looked up to his determination and commitment, and decided to search him up on Linkedin and connect to him. Then I actually got a reply from him with best wishes and one new connection.
The fact that he messaged me was a big surprise for me. Think about it, a junior accountant from Sydney can have a social media interaction with someone living on the other side of the planet, that she found on a non-fiction book, written in 2016 (4 years ago).
So that was a bit of TMI on the book. Below are the quotes that were worth noting down:
Five types of 10% entrepreneurs
Angel: invest your capital, your skills, or both to help other people grow their companies
Advisors: as per above - "You commit to a certain number of hours per month and are compensated in the form of stock." (p.g. 49)
Founders: you create and manage your own businesses, even while you contribute to hold down a day job
Aficionados: you are using entrepreneurship as a means of exploring your passions
110% Entrepreneurs: you are already a full-time entrepreneur, so your primary goal is to diversify yourself
"Farah Khan is an Angel who spends her days working at an investment firm that backs fast-growing companies in the consumer space… she still makes time to invest her own capital in smaller companies that fall below her firm’s minimum investment size." (p.g. 46)
4. Aficionados
"The difference is that the driving motivation is passion rather than pure profit. (p.g. 54)
"Exploring another side of your talents can bring clarity to the rest of your career. You can build networks and acquire skills or insights that may even take you in an entirely new direction." (p.g. 55)
"Whether you have money to invest or not, becoming an Advisor rather than an Angel, let’s you take a seat at the table without putting money at risk." (p.g. 68)
1. Make time count for more
"You must always prioritise your day job, especially during business hours. After all, it is the part of your life that will permit you to work on your own ventures in the first place. If you fail to perform, you’re putting your 10%, as well as the other 90% on the line." (p.g. 82)
3. Spend your time on projects that complement the rest of your life
"By partnering with those you like and respect, you can spend time with the important people in your life." (p.g. 86)
Financial capital
"A recent NYU study revealed that the richest 1% of Americans have 9% of their wealth invested in their homes. For the broader middle class, however, approximately 63% of household net worth is tied up in housing. As you know, having a concentrated position in one investment is risky, especially when you consider that the last financial crisis hit homeowners hardest." (p.g. 87)
You’ve got money to invest- Now what?
"In an extensive 15-year study of returns to angel investors based on a database of some 1,200 investments, the Kauffman Foundation found that on a portfolio level, investors made 2.5 times their money over a 3.5-year period. That represents a return of approximately 30% per annum.
"Meanwhile, a survey of 12 studies compiled by venture capitalist David Teten illustrates that angels can expect returns of anywhere from 18% to 54% on an annualised basis.
"These results are compelling, especially when you consider that stocks generate expected long-term returns of around 10% a year, while holding cash produces an annual return of 3.5%
"That said, all these studies track returns at a portfolio level. That means that some of the investments in a portfolio will perform much better than the average while others will be complete failure." (p.g. 90)
The 10% Investment Process (p.g. 121)
Sourcing: find the opportunity
Screening: assess how it fits your 10% plan
Due diligence: analyse the opportunity
Final decision: commit or pass
Documentation: make it official
1. Sourcing
Anchor tenant: (imagine you’re developing a real estate project) the first tenant you get in the building - puts you in business and takes some pressure off.
It provides a halo effect, telling people that you’re in business, and helping to attract new tenants. (p.g. 122)
2. Screening
Do I have the resources to successfully include this in my 10%?
Do I want to include this in my 10%? (p.g. 124)
4. Final decision
The worst thing any entrepreneur can do is fall in love with an idea (p.g. 127)
Is this business positioned for success, and does it operate in an attractive industry? Will your return on investment compensate for the risks?
Are your partners, from investors to the managers, competent and ethical? Are all parties’ incentives properly aligned?
Will this venture fit within your 10% Plan so that you can (i) contribute meaningfully or gain experience and intellectual capital for future endeavours?
Due diligence checklist: The business
Who is going to be managing the business? Why are these people positioned for success?
What are the drivers of success and failure for this company?
How will it make money? Who are its customers?
What are the competitive dynamics in the industry? What is the size of the market? How can the company gain and defend market share?
What are the key risks? What could cause it to fail, and how likely is such scenario?
What will this business and industry look like in 3 to 5 years? What does success look like?
What kind of talent will the company need to attract to be successful?
Does the company adequately protect its intellectual property, if necessary?
What has been the financial and operational performance of the company to date? How achievable are its growth projections?
How much capital will be required for this business? What are the sources of capital?
Will you be able to invest more if the business is successful? Will you be expected to invest more?
What will be the form of your investment? What will be offered in exchange for your investment of time, money, or combination of the two?
What is the time horizon for this investment? When can you expect to see returns?
What are the potential financial returns for this investment under various scenarios?
Will the founders or other shareholders of the company make money before you do? Is the upside fairly distributed between founders, management, and investors?
"One unfortunate choice not only dooms an investment, but it can also put your reputation at risk". (p.g. 134)
Due diligence checklist: Your partners (p.g. 135)
How will each significant person drive the business forward? Does each person have what it takes to succeed?
Has this person been successful before in a relevant or related endeavour? Does the team have a track record?
Does this person share your professional ethic?
Where are the holes in the team?
Has this person been through conflicts with business partners or employers?
Is this person open about his past experiences, both successes and failures?
Is this person willing to accept advice, feedback, and criticism?
Are there any conflicts of interest?
Will this person share information and keep you advised of key developments?
Does this person value your contribution? Will he pick up the phone when you call?
Do the founders of the business have meaningful “skin in the game”? Have they made a significant investment in terms of time, money, or both?
Do the founders and managers have appropriate incentives (i.e. ownership in the company) to keep them focused and committed?
Who are the other Angels, Advisors, and investors in the venture? Why are they involved, and how do they view the opportunity? Has the company attracted “smart money”?
"If you find that you are still not sure, or you don’t feel you have strong enough network to get the information you need, you can request a few references. If someone is unwilling to provide you with a list of professional references, then he’s probably not the kind of person you want as a partner." (p.g. 136)
Due diligence checklist: Your role (p.g. 140)
How do your resources map to the needs of the company both today and in the future?
Do you have intellectual capital and relationships that will allow you to contribute meaningfully to the success of the venture?
Does the management team value your input and ideas? Will they want to engage with you and seek your advice?
Do you feel comfortable with the team? Are you able to have straightforward conversations based on facts and data, rather than emotion?
Is the company responsive to your requests? Do they provide information and answer questions in timely manner?
What can you learn in this venture that will make you a better 10% Entrepreneur?
Will you be able to form relationships that will help you to grow your 10%?
If you’re an Advisor, does rhe company set specific objectives and expectations with regard to your role?
If you’re a Founder, are your partners ready to commit? Are all parties ready to commit? Are all parties prepared to sign agreements with respect to each person’s specific level of involvement and economic stake?
You want to leave every potential partner with a favourable impression of your intellect and your ethics, whether you become partners or not. You can do this by making decisions quickly and sticking to them. (p.g. 140 143
5. Documentation (p.g. 143)
Angel: sign contracts in which you buy shares in the company
Advisor: sign an Advisor agreement in which you agree to a minimum level of commitment in exchange for shares
Founder: document your arrangements with your investors and partners
221020
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