Ask HN: I sold my company last month for $5m. What do I do with the money?

Have you ever considered investing in an organization that specializes in micro-finance? The potential to do good and impact impoverished people with even a small portion of your recent earnings (congrats, by the way!) is incredible.

A high-level summary of micro-finance is the issuing of small loans (often just $100-$200) to small groups of 3-4 extremely poor people. The borrower then uses that previously unattainable capital to purchase supplies and equipment to open their own business.

A classic example would be a poor woman in rural Mexico. Her husband works in the fields and they make just barely enough to get by and feed their kids, there's no capital left over even in a good season, and therefore no way to get ahead. If someone were to offer her the opportunity for a micro-loan, she would have a chance to overcome that barrier of extreme poverty.

The lender of the micro-loan would have the woman find another two or three of her friends, and they would form a borrowing group. The borrowing group puts together their aggregate financial needs, and a loan is issued to the group. The purpose of the group is accountability and camaraderie, and receiving additional loans is contingent on every member paying back their loan on time The group will meet together once a week with the lender and pay back a small portion of their loan plus interest over the course of 6 to 8 months.

Upon receiving the loan, the woman would buy a large pot, supplies, ingredients, and a table, and begin making and selling tamales out of the front of her house. She'd make enough to cover her own living expenses and pay off the weekly loan repayment amounts, while improving her own quality of life and gaining confidence.

This extends credit to people who would have never qualified under the existing banking system, and I have story upon story of people's lives who were absolutely changed by what we would consider an absolutely trivial amount.

I don't do this for a living, but I firmly believe in it, and will be putting that belief into practice within the next year.

Some micro-finance organizations include: 1. Grameen Bank - http://www.grameen-info.org/ 2. Kiva - http://kiva.org (started by PayPal alums) 3. MicroPlace - http://www.microplace.com/ (backed by PayPal)

For further reading, see (Microfinance) http://en.wikipedia.org/wiki/Microfinance and (Banker to the Poor) http://www.amazon.com/Banker-Poor-Micro-Lending-Against-Poverty/dp/1586481983/ref=sr_1_1?ie=UTF8&s=books&qid=1274968591&sr=8-1

Go do some good. :)

First, congratulations!

Now, to business.. If you sold company stock, and live in the states, you now owe about $1m in taxes, or a little less depending on what state you live in.

Your very first job is to sit down with an accountant and get your 2010 taxes estimated. Then set aside the money for this. Seriously, do it today. Then lock in your head "I sold my company for $4m." It will help you in the future days to remember that.

If it was an asset sale, you got f-ed, and now owe a lot of tax money. Live and learn.

Next, let's talk about 'more money than I can ever spend'. If you keep your current spending rates, and you keep your money in a completely 'safe' vehicle that exactly matches inflation, you have about 94 years of spending ahead of you at your current rates, and at 15% cap gains tax on the 'earnings'.

It is nearly psychologically impossible for a newly minted 20-something millionaire to keep at their current level of spending. Since you do not already have a plan for this money, I would say that it is 100% likely you are not the sort who can go about his business without some change in lifestyle. So I would suggest that you expect either to keep working or get good at investing.

Along with the books recommended here, I would strongly recommend you pick up one called "How To Retire Early and Live Well on Less than a Million Dollars." It's written by a financial writer who decided to do what the title says in the 1970s. He talks through a number of items and considerations that financial advisors will not think about. Simple example: what's the proper amount of real estate leverage for someone who needs some income, and wants to be able to hold on to the building in a real estate crash? This is not typically discussed in most investing books.

It is not unreasonable, based on all this, to put almost all of this money into a one year, low-risk, locked-away investment just to give yourself time to think, plan,and get on with a new part of your life.

Now, if you built this company up, and are now unemployed, expect to be depressed. You should consider (along with some celebrating) doing some fun things (I like to travel), and also learning some new skills.

You will need some new friends, because your old ones will all still be working,and won't be able to hang out most of the time. You might want to find a new hobby, or pick up an old one.

Finally, enjoy! Sounds like a great experience.

Send it to me, I'll take care of it for you ;)

Here is what I would personally suggest, having encountered a similar scenario once a long time ago...

Find a place to park about $4.9M in a CD, Money Market account, or similar ultra low risk location. Don't get too hung up on getting the absolute best interest rate, just find a place that will give you easy liquidity (ie: DON'T make a 5 year investment right now).

Then, buy and read the following books: "A Random Walk Guide to Investing" - Burton Malkiel "The Only Investment Guide You'll Ever Need" - Andrew Tobias

(and/or any equivalent titles that catch your interest).

Then once you have a good/better understanding of financial investments interview some financial advisors and talk to them in depth about how they plan to manage your assets. Ideally you're looking for something more along the lines of a "wealth manager" vs. a financial advisor.

Killing a year finding the right investment approach while your money makes even a very low percentage rate is, for a 20 year old, a better approach than rushing out and making possibly a bad investment that incurs a big loss, or has tax liabilities you don't fully understand.

In the shorter term, you should find a good local CPA-for-hire and make sure you understand any possible income tax issues. In some (many) cases, if you will owe a large income tax return you will need to pre-pay or make estimated payments. Not doing so can take a big bite out of your ass later (ref: portion above about keeping funds semi-liquid).

BTW, congrats on your success. Take it slow and don't be tempted to believe you know what you're doing or can repeat this easily (learned advice ;) ). You have much time and luxury to plan your next move, and no matter what anyone tells you, you are not missing out on the investment opportunity of a lifetime in the next 24 months and do not need to make any rash decisions.

At the same time, you should sort of off-handedly tell family and friends that you locked in to a great investment and in 5 years or so will be able to access some of the funds. This proactive approach is better than having to say no to all the outreaches for "help" and "personal investments" that tend to come with a large chunk o' cash.

Figure out how much you really have after taxes, fees, other reductions, etc. Keep it in a safe bank account (i.e. the bank will not become bankrupt and your money will disappear; no matter where you keep it, make sure it doesn't vanish) Then sit down and figure out what you want to do. Others have already provided a comprehensive guide to immediate tasks. I think it will help to define a purpose for this money. Your modest living should help greatly; just make sure you don't take purely financial risk with the money (like becoming an investor disconnected absolutely with what he's investing in).

Some personal suggestions of mine include starting another company that you have passion to start and fund. It seems that you won't waste money, but it goes without saying to start as though you has no money at all. If you start anything whether it's a non-profit or company, start immediately with what you need. Ask if you can start with the least you have. Read REWORK by 37signals. (this book will provide invaluable experience) Read Getting Things Done by David Allen. Not only will it help to organize yourself, but refocus yourself on a 50,000 feet level and realize what you want to do with your life. The book can prompt internal self-actualization, but you have to be the one to figure it out. (though their workflow coaching can help setup your system for the first time, you can do it yourself too) Some of this advice, you probably know already, but this can be a refresher.

Ask yourself questions! Feel that you want to help other in your community? Do that. See an incredible opportunity on the horizon? Do that. Work with what you have a passion for.

I hope others on the internet and I have been able to provide sound ideas for what to do. Whatever the case, you already came this far. I wish you the best of luck in what you plan to pursue, and hopefully you'll be able to benefit our world and yourself. Make sure that you make the decision you know are the best for you. Personally, please use the money constructively...help someone with it if you don't know what else to do after making sure you have enough for the rest of your life.

My advice:

- It's not as much money as you think. That might sound ridiculous to people without it, but you're not going to start living the Entourage lifestyle on 5m. You are 20, not 60 and it's unlikely you will ever get a higher return on an investment. It's your duty to protect and grow this wealth.

- You can't stop working, I tried and failed. Take some time off, travel, find a new passion or start over with a new company. Your life is just beginning.

- I'd suggest reading about Value Investing. I'm not saying you should invest your own money, but you damn well better know what's going on with it and why. Understand that inflation will eat away at this without the proper defense. Understand the ramifications of investments: liquidity, taxes, cash flow, etc.

- Keep a low profile, people are going to come out of the woodwork for lunches/pitches/loans/gimmicks. Be polite, but be stern (the answer should almost always be no).

- Get a good local attorney and a good accountant ASAP, an afternoon of research should point you in the right direction. Talk to them about asset protection plans.

- Stick with what you know (assuming it's computers). People are going to suggest all sorts of things, but do you really want to be a landlord, run a Subway, own a carwash, etc? I'm not saying you can never go in a new direction, but be careful. It's about 1000x easier to lose a fortune than make one.

- Buy yourself a nice, not extravagant house. Treat yourself to something "fancy" (say a slightly used BMW, not a Ferrari) and the rest goes away. Set a comfortable monthly budget, DO NOT GO OVER THAT BUDGET. Make a spreadsheet of your investments, get a Mint account, find leaks and plug the holes.

- Invest your money in a mix of stocks/bonds/treasuries. Spread the stocks across different markets (US/China/Asia/Japan/Europe), it should be about half of your asset allocation. Keep about 5% accessible.

- Stick with your friends and family, be careful with girls and sign a prenup.