On December 9, we held our first Equity Essentials session, where we covered basic equity topics such as how to understand grants, how vesting and exercising works, and basic tax implications. Later that day, during our Equity Compensation and Personal Finance 102 session at the 2020 Table Stakes Summit, we took things a little further and had Aditi Maliwal, Partner at Upfront Ventures, interview Alexa von Tobel, Founder and Managing Partner at Inspired Capital, about personal finance, investing, and more.
(This transcript has been edited and condensed for length and clarity.)
From founder to investor
Aditi: Alexa, you’re the legendary founder of LearnVest, which you sold to Northwestern Mutual in 2015—one of the biggest fintech acquisitions that year. Before we dive into the session, I’d love to hear more about the impetus to start LearnVest. And how did you transition to being an investor?
Alexa: I grew up in Florida and have always been an entrepreneur. I think that’s the one constant in my life when I was little—instead of being obsessed with pop stars and actors, I was obsessed with CEOs, which was a very bizarre thing for young girls to be obsessed with.
I went to Harvard undergrad, applied to HBS, and ended up getting in. But I deferred and started on the investing side. I made my way to New York, got really excited about the tech scene, spent a little time on the investing side, and then was part of a company that got acquired by Facebook. After I got a full sense of everything in the tech scene, I went back to business school in the fall of 2008 as the world fell apart.
I always say when everybody zigs, zag. When everybody runs for cover, it’s time to go and take thoughtful, calculated risks. I’d been writing a business plan for LearnVest, which, for those of you who never got to use it, was Turbo Tax for financial planning. It brought financial planning to the masses.
When everybody zigs, zag. When everybody runs for cover, it’s time to go and take thoughtful, calculated risks.
Five years later, I sold it for about $400 million to Northwestern Mutual. I sold it on a Wednesday and had a baby that weekend—my first child. I always joke that if I can survive that, I think I can survive anything.
And then I ended up getting back to the investing side. I started doing a ton of angel investing and invested in some great companies like Lemonade and Airtable (wish I’d invested in Carta). I quickly realized I love the investing side. When I finished my three-year stint at Northwestern Mutual, I said I want a fund that’s New York headquartered that understands a bunch of really critical categories and knows how to build and sell companies. So we launched a $200 million fund. We’re now a year and a half into it and I’m having the time of my life.
I love nothing more than helping people build businesses. My financial planning hat is so helpful. We were generalist funded, Inspired Capital, but financial planning is about strategy and making the most of what you have. So it all fits together. And I love that Carta is doing this talk because I think it’s really about helping people make the most of their financial wellbeing. But also it’s just a very interesting time to think about how to best use your money.
“Equity is the new land”
Aditi: We’re all here because we believe equity and ownership is a huge driver of wealth. But there aren’t many easy ways to learn about equity. And oftentimes, especially if you’re in the venture ecosystem or Silicon Valley, it can be a little embarrassing to admit you don’t know something about equity. When did you really start learning about equity, and what prompted you to start spending more time to understand your relationship with equity?
Alexa: First, let’s remember what equity is. Equity is simply an investment that you own. It’s a slice of a company.
One other thing I want to say before we get started is one of the reasons why I ever got this informed is because I was just like everybody else. I remember thinking to myself, “I have no idea the basics of my own wallet. I have no idea how many credit cards I should have. I have no idea how to think about my 401(k).” So one thing I urge people when it comes to your wallet is ask every dumb question that exists. Do not be embarrassed.
Ask every dumb question that exists. Do not be embarrassed.
You’re going to take great care of your health. You want to take great care of your wealth because your wealth will be with you every day of your life. Whether we like it or not, money is a really important lifeline.
Financial empowerment is probably one of the best gifts outside of great health. It’s about having the simple freedom to be able to do what you want. Being obsessed with money to the point where you only want to make as much as possible or ignoring it entirely—neither are good routes. You want a good relationship with money that makes it so you feel informed. You understand what to do with it. Money is a tool that’s supposed to let you live the life you want.
Money is a tool that’s supposed to let you live the life you want.
There are many different types of equity, but all it really means is you’re owning a portion of a company. There are publicly traded companies—the Apples, the Googles, the Amazons that we all know—where you can buy in and out of shares easily. Then there’s the private markets, which is venture capital. It’s Carta, it’s everything else. And we’re seeing the private markets are exploding. They’re getting very big very quickly.
I believe equity ownership for Gen Z is going to be the new version of owning a home. If you work at a startup, get some equity, and it grows into $100,000 of value, $500,000, $1,000,000, it’s akin to homeownership for our parents. I have this quote, which is “equity is the new land.” Our parents’ generation wanted to buy a home. That was everything. And I’m not saying homeownership is not important. It’s just we’re quickly realizing a place to amass a ton of value very quickly is to own stakes in some of these rapidly growing businesses.
But it comes with a lot of caution. Having 80% of your worth in one stock is never a good idea. It’s a very thoughtful thing you have to manage. That’s the flip side of it.
In a nutshell, that’s what equity is. You have the legal right to own a portion of that company and all the value that’s accrued in the future of that company.
Aditi:In the venture ecosystem, equity is really where the wealth creation is happening. What advice would you give to people who are starting off pretty early in their startup careers and have access to equity in the form of stock options? How should they start learning about equity? Where should they even begin?
Alexa: It doesn’t matter if you’re 20, 40, 50, or 60—I’m gonna always give people the same advice. Before you even begin to think about your equity in a company, I want to quickly run through the basics of financial hygiene. If you are my best friend and I’m sitting with you and I’m running your financial plan, these are the things I would tell you to do.
You need to have no credit card debt at all times. You want to pay your credit card off in full because credit card debt, for a variety of reasons, is pretty emotionally toxic. There are a lot of stats around when you carry credit card debt, you don’t achieve other things. But also you can hurt your credit score, etc.
I want you to have an emergency savings account that is at least six months. As you get older, you want closer to 12 months. An emergency savings account in liquid cash—as we have all seen, COVID is a real emergency. It can happen.
Finally, you always want to max out your retirement accounts. There are two flavors of retirement accounts. There’s your 401(k), which you get offered through work, where you can invest up to $19,000 per year. Additionally, you can do an IRA, which stands for individual retirement account. It’s $6,000. So per person, you can do $25,000 per year in retirement.
Often, a retirement account is the most valuable place for you to invest. It’s tax deferred because the government wants to make sure you save for retirement. Because they’re not paying for your retirement—you’ll pay for your own retirement. Additionally, the sooner you start investing for retirement, the faster it grows. It’s not magic—if you look at the S&P 500 over the last 100+ years, on average, it’s about 10-11%. So you take $1, the next year it’s $1.11, and the next year it’s $1.23, and it just rapidly grows.
So in general, you’ve got to do those three things. At LearnVest, we called them the monopoly steps: no credit card debt, full emergency savings at all times—and an emergency is not your friend’s wedding—and making sure you max out retirement.
After that, you can begin thinking about all the other things you can do: buying a home, saving for kids, managing your equity in your company, etc. But you have to have those three things if something catastrophic happened to you to ensure you don’t end up going bankrupt.
Learning about equity
Aditi: Say someone’s done the three things. How do they start thinking about and understanding their own equity? What are some places they can start doing work, and what are some of the early questions they should ask and know the answers to and be thinking about?
Alexa: When you work at a company, they’re going to pay some part of your compensation in stock. What you really want to understand is a few things:
What is it valued at today? What value am I getting?
How long is the vesting schedule? When does it really become mine?
What do I think the growth trajectory of this really is?
And at some point, in order to lock in owning that, you actually have to pay for it—you have to exercise your options.
My general advice is there’s no such thing as a dumb question. Ask whoever you have to: HR, your friends, etc. to say, “what should I be doing with my equity? What do I need to pay?”
One of the best things I ever did was when I was young was I actually bought up all my stock. I went to the board and I paid to exercise all of my options early so I could lock in long-term capital gains. If you don’t own the stock for longer than 12 months, you actually pay short term gains, aka income tax, on it. Versus if you simply own it for longer than 12 months, you get to pay a much lower tax rate—in some cases up to 15% lower. A 15% improvement on your investment is a big deal.
Those are the things you want to think about. You want to understand what’s it worth today? Do you think the company can double, triple, quadruple? You want to know that in order to actually get it legally, you have to exercise your strike price. And ideally the company doesn’t have an exit for 12 months because you want to lock in long-term capital gains.
In general, if you only had $1, I would say be careful about just buying all your stock. You need no credit card debt, you need an emergency savings account, and you need to be contributing to your retirement account. You must have those things or else you truly are not in a good spot. On the flip side, if you really believe in a company, you really want to make sure you understand the decisions you’re making. And you particularly want to make sure you understand what it will look like when you exercise—how much of a check you have to write. I think that’s the most important thing to understand.
Saving for retirement
Alexa: In general, for women, retirement is more important. On average, women outlive men 6.2 years. And that’s a stat from a few years ago, so women could be living even a little bit longer. But women tend to be healthier, lower stress—all the things—and you often will outlive your partner. So it’s really important that you have more savings than a man because you’ll hopefully live until 95, 100, etc.
You have a regular IRA and you have a Roth IRA. Roughly speaking, if you individually make under about $125K you can do a Roth IRA. You can put in $6,000, pay the taxes on it when it goes in, and then it grows. And when you take it out, it’s tax-free, and it’s one of the best inheritance vehicles. So if you never need to use it, you can give it to your kids. Phenomenally massive growth, no taxes—probably one of the best inheritance vehicles possible.
If you make over $125K—I’ll use myself as an example, I have to contribute to a traditional IRA. And then roughly every two years, I roll it over into a Roth. And when I do, I have to pay the taxes. So basically, I lose some portion of it. But that means much later when it comes out, it’ll be tax-free. So you can do the Roth—you just have to roll it over. It’s relatively simple. It takes about 45 minutes. It’s a pain, but I do it roughly every two years.
Robo advisors, CFPs, and investing
I deeply believe that in the same way that you have a primary care doctor, you absolutely need to find an advisor at some point.
Aditi: When I graduated from college, I went into investment banking and just followed the protocol of my fellow analysts and friends. They told me, “max out your 401(k)— your company’s helping you to do this.” And then they were like, “do you have a Betterment account? Set one up right now.” They told me what to do, and I listened to them and went along with it.
If you were to work with a robo advisor or do some of this planning on your own, do you start with a spreadsheet? Do you start with one of the platforms? Where do you begin?
Alexa: I deeply believe that in the same way that you have a primary care doctor, you absolutely need to find an advisor at some point.
I’m a Certified Financial Planner. It’s one of the harder tests I’ve ever taken in my life. I took it when the test was 10 hours and two days on paper. But I think now it’s one day and eight hours. The pass rate is only 30%. It’s very hard. You go through everything around somebody’s finances. So in general, I like CFPs.
I strongly recommend that at some point, you need a CFP. You can either find one by going to the big financial institutions—Vanguard, etc.—and they’ll basically give you one for free, but they’ll charge you on some of your money that’s sitting there. So you’re paying for it. Or, you can go find a CFP. Sometimes they’ll build a plan for you for $500-$1,000 dollars. In general, paying for financial advice is a good thing because you often end up making way more because you make better decisions. Free advice is never as good as the really good and informed advice.
In general, paying for financial advice is a good thing because you often end up making way more because you make better decisions.
I do like robo-advisors—John Stein from Betterment is a good friend of mine. Places where you can set it and forget it and let wealth grow where there’s very low fees—ETFs, index funds, things like that—I absolutely love. And I can’t wait for the day we have self-driving wallets. So if anybody out there wants to build a self-driving wallet, come talk to me because I want to back it.
As we think about the future of money, I think algorithms will run our wallets—as they should, because it’s math. Our wallets are simply math. The core question of financial planning is if you have an extra $1, $100, $1,000, where is the most optimal place to put it? That’s what a financial planner is doing at all times—paired with what you want to achieve.
Aditi: At what net worth or salary does a CFP make sense?
Alexa: I would ask a similar question: at what level does seeing a doctor make sense? You should always see a doctor. But in a weird way with money, we lose our minds. It doesn’t matter if you know a guy in finance—you wouldn’t say “I know somebody who works in a hospital, so I’m going to get them to be my doctor.”
In general, once you’re at the point where you can afford $500 to get a financial plan from an expert, that $500 is probably going to save you in spades because you’re going to make slightly better decisions. And by the time you have a salary over $150,000 or a net worth of some real money, having a financial planner makes sense.
My entire life’s career for the first 15 years of building LearnVest and everything else before I went back into venture was around asking the question of why financial planning is a luxury product. If you have a lot of money, people want to get advice. But the whole point is when you don’t have a lot of money, you need to make really good decisions so you can have more. It’s equivalent to the health care system only saying “we’ll see healthy people.” That’s not the point.
The behavioral aspects of financial planning
Alexa:Humans are emotional. I’m emotional, you’re emotional—we’re human. And people tend to make really poor decisions when the markets are doing really badly. Great financial planners get you to calm down and not trade in and out of the market.
There’s this thing called the rule of five: If you don’t need the money in five years, you can absolutely invest it in the markets. If in 10 years I want to buy a home or have kids, I want to be fully invested, all equities, set it and forget it, S&P 500, let it go. I don’t care because I don’t need the money. And again, the annual average over 100 years is about 11%. So just let it keep going. In 15 to whatever years from now, you’ll see that compounding wealth.
But what happens? The emotional part of humans causes you to panic. You make terrible decisions. And that’s precisely why I, sitting here as a CFP, have a CFP who works with my husband and me—because you need that emotional bridge.
The emotional part of humans causes you to panic. You make terrible decisions. And that’s precisely why I, sitting here as a CFP, have a CFP who works with my husband and me—because you need that emotional bridge.
Personal finance resources
Aditi:What are your top personal finance reads? Any tips or people you follow, blogs, newsletters?
Alexa: I wrote my book, Financially Fearless, because it was exactly what I wish existed. It was straightforward in plain English. You can skip the chapters if it’s a topic you don’t think you need because you don’t have kids or whatever it may be. It’s what I always wanted.
At this point, you can Google a lot of “what is this?” But that doesn’t mean you can put together a financial plan. The whole point of financial planning is there’s a financial waterfall that happens.
At LearnVest, we had a seven step program.
Get organized. I actually need to know where every penny you have is.
Do you have a budget where you are living within your means? For most people, the answer is not always yes.
The monopoly steps that I just walked through. So, getting you through those things in order to stay healthy. No credit card debt, emergency savings, on track for 401(k).
Your dream. What do you want to happen in the next five years of your life? Are you having a child? Are you buying a home? Are you paying for your parents? Do you want to go on a big vacation? Set very discreet, clear goals. Based on how long the time horizon is, put money in investments that make sense for those time horizons.
Get all the insurance you need—being underinsured is the number one way to go bankrupt.
If you have extra money left, that’s when we purely invest.
Hygiene. Rinse and repeat once a month—what to put on your calendar, what to automate. I take one hour a month to do financial planning for my family. It’s simple. And every day, I take one daily money minute to log into my accounts to make sure everything didn’t miraculously get stolen or have a big issue.
Aditi: One thing that’s come up a lot with some of my friends and a lot of younger folks is we’re starting to learn more about our finances. And I think for me personally, there’s this massive wall. I just need to begin. Any thoughts around that and the inertia that a lot of us need to get started?
Alexa: My biggest rule for everybody is when it comes to your wallet, it’s about making progress. We literally had a tagline called “progress not perfection” because your money’s always moving. Remember that.
When it comes to your wallet, it’s about making progress. Your money’s always moving. Remember that.
Two years ago, I only had one child. Now, I have three. That dramatically changed all of our planning. Your life changes. As you get a raise, your life changes. How you think about money changes. If you get married or live with somebody, your financial picture changes. So it needs to be in motion.
Money is very emotionally stressful. None of us can get enough money. Everybody always knows somebody that came from more. Everybody’s oddly ashamed about money. And I try to bring a safe, psychological wellbeing aspect to it because I don’t want to stress out about money for the rest of my life—that’s not the purpose of living. So I try to get people to focus on making things better. And then at some point you get to a point where you realize money’s really not that complicated. It just feels very overwhelming because it’s very emotional. The second you get the emotions out, you can start really focusing on progress.
If you’re wondering what’s one thing you can do today, the big thing is contribute more to your 401(k). That is a decision of no regret almost all times. And try to max it out. If you have an emergency savings account that isn’t big enough, add an extra month to it and save for it. And then you get to the point where it starts to look better. What’s funny about money is once it starts to look better it becomes more fun. It’s this really healthy self-fulfilling prophecy.
The only other thing I would add to this is there’s so much around, “let’s not talk about money.” I need my best friends. We don’t always share all the numbers, but it’s very much about, “hey, I’m trying to save for this thing.” You create a really good environment among your friends and your family—everyone’s trying to save. 70% of the country’s living paycheck to paycheck. So trying, again, to make it something that’s more normalized. And you quickly start to find you feel great about it. Never be ashamed about where you are—I can promise you as somebody who’s talked to over 10,000 families, everybody is stressed out. I’ve probably met on one hand the number of people who are like, “I love money. I feel great about it.”
Never be ashamed about where you are—I can promise you as somebody who’s talked to over 10,000 families, everybody is stressed out.
Aditi: So we’ve talked a lot about building the financial stability, building the groundwork, putting your infrastructure in place. Especially if you’re an employee at a startup and you’re starting to see some liquidity, how do you start thinking about angel investing? Is that something you want to be doing? It seems like every single person I know at this point is an angel investor. Is it putting in $1,000 into my friend’s company, or does it have to be writing $50K checks every two months? Help us debug that a little bit.
Alexa: There are different asset classes. You have savings earning less than half a percent, which is almost useless. You have CDs—maybe that’s 1%. You have bonds—that’s maybe anywhere from 3-7%. You have equities, which could be anywhere from 10-40%. I think Amazon was 75% two years ago. So very, very high growth. And then you have venture, which is super high risk. 95-99% of the time it’s worth zero. You lose everything. Or it could be worth 300x, 50x. You get a 2x or 3x return, whatever it may be. So very high reward.
If you’re my little sister, I’d say don’t do anything until you have emergency savings, no credit card debt, and a 401(k). And then I would say, “let’s do the things that are decisions with no regret.” You want to save for a home or you’re having a child. Then, find a little bit of money that you truly can afford to lose—whatever amount that is. It could be $10K, $100K, whatever it is. And break that up into a few small checks into people you think are absolutely brilliant.
The one thing I tell people is if you’re going to angel invest, expect to lose it all. If you have upside and win, way to go. But you should be prepared to lose it all. And as somebody who looks at people’s finances all the time, you’re probably gonna lose it all. If you don’t and it works out, that’s wonderful, but as long as you can be completely rock solid about if you lost it, go for it. Same with crypto and Bitcoin.
Alexa:One other thing that popped up was how liquid should your emergency account be?
Truly liquid. Emergency savings are for overnight somebody finds out they are extremely sick and need to be able to go take care of themselves and see better doctors. Or you lose your job and so does your spouse in the same week. It happens. A 9/11 event happens. There are so many edge cases that can happen. It needs to be liquid, and it’s okay if it’s not earning interest.
One other stat that’s important to know is if you currently make over $100K, experts recommend that you have nine months worth of emergency savings. Why? Because the higher paid you are, the harder it is to find a job of equal career track. So it takes longer to find one on the same or greater trajectory.
Here’s the problem with taking on credit card debt for emergencies: what if those moments are longer than nine months? Then all of a sudden you’re potentially in extreme credit card debt growing at negative 17%. That’s why you really want it to be liquid. I have emergency savings. It drives me nuts every day. It’s sitting in liquid cash period.
Not all debt is created equal. There’s good debt and bad debt.
Aditi: What’s your point of view on how to think about managing student loans? We’ve talked about the three fundamentals that are super important as you’re building your financial infrastructure, but student loans and debt play a big role in all of this. How should you be thinking about putting away capital toward that in terms of your overall risk profile?
Alexa: Not all debt is created equal. There’s good debt and bad debt. Good debt is things like your mortgage—there’s an asset underneath it that ideally grows in value—and student loans. You are the asset. You ideally grow in value.
Bad debt is credit card debt. A mortgage is 3-4%, let’s say negative 3-4% interest. Student debt is, let’s say, 8-10% negative interest again against your 1% savings. Credit cards are negative 17%. Car loans are another type of bad debt—also quite expensive. So when you stack it all up, they’re not equal.
Pay your minimum on your student loans. Consolidate it thoughtfully. But negative 8% versus 10-15% in your 401(k)—especially if there’s a match—that’s free money, literally 100% guaranteed return on your investment. I would do the 401(k) all day long.
So you want to pay your minimum, and if you decide for some reason that you have nothing else to do with your money, I would still say, maybe invest and continue to pay the minimum or chip away at it in bigger checks, but it’s often not the most valuable place to put your next dollar.
It’s an emotional thing because you have it, but it doesn’t hurt your credit score. And as long as you always pay the minimum payments, it’s just standing there. It’s something for you to continue to pay down, but there are more valuable things to do with money.
Exercising stock options
Aditi: You exercised your options when you were at LearnVest. A lot of folks today are on this chat and there’ve been some conversation threads on when to exercise and how to decide whether you want to own your options. Can we hear more about your decision-making process and how you made that decision and how people can use that framework?
Alexa:It’s not always binary—it’s not either exercise all or exercise none. If the check that you have to write to exercise your options is $10,000, but you only have $12,000. I would say no.
Remember: you’re inside the company, so you actually have the best insights possible. Why did I buy everything? I was really bullish on what I thought we could create. You have some of the best insights possible. So you get to buy stock knowing a lot, which is kind of like a legal form of insider trading trading in some ways. You don’t have to exercise. If you’re rich and you don’t have any other big financial problems, think about how to think about exercising it.
But a financial planner would be able to go down to the penny and say, “how much do you believe in the company? Let’s do X of what you have. And next year, maybe we’ll do a little bit more.” You can ease into it. It doesn’t have to be one check or not.
But don’t take an approach of “I’m not gonna even think about it.” Because if you leave, you lose it. The other thing is don’t buy it all without making sure all your other ducks are in a row.
My job in this talk is to make sure you feel safe with money. I want you to feel stress-free because then you can go do great things. Money’s very stressful. If you feel really stressed out about it, it impacts everything—our health, your emotions, your family. I don’t want you to feel stress. I want you to be able to go and do big things.
DISCLOSURE: This communication is on behalf of eShares Inc., d/b/a Carta, Inc. (“Carta”). This communication is not to be construed as legal, financial, accounting or tax advice and is for informational purposes only. This communication is not intended as a recommendation, offer or solicitation for the purchase or sale of any security. Carta does not assume any liability for reliance on the information provided herein.