OK, You’re Rich. Now What?
Silicon Valley has a new case of “sudden wealth syndrome.” This week’s stratospheric public offering of LinkedIn Corp., the social-networking company whose shares more than doubled on Thursday, turned company founder Reid Hoffman into the nation’s latest tech billionaire, with a stake valued at more than $1.7 billion. CEO Jeffrey Weiner, who joined the company in 2009, is now worth more than $200 million.
With more IPOs in the offing, from Zynga Inc. to Groupon Inc. to Facebook, the social-media craze has become America’s latest supernova of wealth creation, launching a new generation of millionaires and recalling the instant riches of the 1990s dot-com explosion. Terms like sudden wealth syndrome and “affluenza,” which had largely vanished from the offices of Palo Alto, Calif., and the cocktail parties of nearby Atherton, are back.
Yet when it comes to investing and spending their newfound fortunes, Silicon Valley’s newly rich are likely chart a different course from their predecessors. In the wake of the dot-com bust in 2001, which left many dot-com millionaires with massive mortgages and worthless stock, the new tech magnates are likely to take a more cautious approach to their money. Advisers say the new class of dot-commers is likely to sell as much of their holdings as possible and protect their cash.
“We’ve been through such a number of watershed events over the past decade, and those lessons are writ so large,” says Chris Sheldon, director of investment strategies at BNY Mellon Wealth Management, which has a number of wealthy tech clients. ” I think people seem to have a better chance this time around of starting out the right way.”
Of course, some of the suddenly wealthy of 2011 may end up making the same mistakes as the last group. Tech entrepreneurs often pursue their corporate visions with missionary zeal and are loath to sell company shares, even if it is financially prudent. And loading up on social-media stocks has proved highly lucractive for investors like Russian billionaire Uri Milner, who invested with Facebook, Groupon and Zynga, and recently bought a $100 million house in Los Altos Hills, Calif.
Yet Silicon Valley’s top wealth managers are telling their newly rich clients to cash out as much as possible. If the old message was “risk and returns,” the new message is “protect and preserve.”
“The folks today don’t have the sense that the world will keep getting better and everyone will keep getting richer,” says Keith Whitaker, a wealth counselor and president of Wise Counsel Research in Boston, which studies wealth. “There’s a desire to be liquid, and less trust in financial markets and less of an appetite for risk.”