How To Get Rich, and Stay Rich With The Coterie’s Ethan Agarwal

today we're talking about wealth who's earning it and how it's earned and where to find it historically the most common way to earn wealth was to inherit it our parents said accumulate wealth by staying at a corporate job for over a decade but we know that's not how to do it anymore what if I told you there's a different way there are 22 million millionaires in the U.S and a growing percentage are under the age of 45. today I'm sitting down with Ethan Agarwal CEO of initialized company the codery and we're going to talk exactly about wealth let's get started thank you [Music] Ethan thank you so much for coming on the channel today today we're talking about something that I think is near and dear to your heart and my heart and a lot of people who are watching right now which is how do you get rich but also once you get rich how do you keep it yeah I think we probably want to start with defining that word right so I think the word rich or even wealthy has changed a lot in just 10 years if you look back a couple Generations ago rich or wealthy was sort of a goal and it was like okay once I'm wealthy then I'm done then I'm going to retire on the beach right now we think of wealth as like an unlock to go do whatever we actually want to do right so like you're in a job that maybe you like or don't like but ultimately the goal is to get enough money because you want to go start a company or you want to invest in an idea or you want to start a non-profit or whatever so wealth is no longer seen as an end game it's seen as like the unlock to freedom to go do what you want so how do you get that well historically the most likely way to get rich was to have Rich parents that's still True by the way in the U.S about a third of the wealth in the country is inherited wealth the other third is uh sort of in stock trading and investing and things like that but the other third of it is created and I think I think the question is what inspires people to create a meaningful amount of wealth and one of the things that we have found is that there's something about the DNA of second generation immigrants and you know America is an immigrant country by definition but there's something about second generation immigrants that inspires them to create immense amount of wealth yeah ironically without actually trying to do it we get the job done we get there okay we're going to get the job done right and like it's it's a byproduct right it's like we have something else we want to do and you end up creating you know wealth out of that and so then the question becomes what are the attributes about second generation Founders or second generation immigrants that makes them so successful I mean biology srinivasan always talks about this there's a huge difference between sort of inherited wealth and built wealth right and you know it's something that I don't know is sort of in your history in my history actually yeah I mean why don't you start like I think your story is so fascinating of where you started and you know what you've built in the last 15 years by yourself it's remarkable I mean I think what's weird though when you look at some of the Immigrant communities is that if you go back a few Generations like sometimes especially in the Chinese diaspora you actually notice that you know people had to leave China because of the Communist Revolution literally so you know grandparents my grandparents on both sides actually had to flee because they gave the businesses in their home countries to you know great aunts and uncles who then were killed or persecuted were sort of the Survivor generation because we fled and then the weirdest thing for me realizing at some point that my grandfather actually had his Factory seas in China by the left and then he rebuilt his businesses from scratch in Myanmar and then uh the anti-chinese government actually seized it again but eight brothers and sisters ended up like out here in Canada in the United States and there's like an incredible amount of immigration that has like that kind of story that like the 20th century took incredible amounts of basically Survivor genetics and planted it here yeah I mean there's an argument about the people that came here were the I don't know how to say this but sort of the most eager the the greatest Fighters the most sort of exploratory wanted to get out and like you know so in the in America they pass the Asian Immigration Act which is why a lot of your you know ancestors and my ancestors came here in the 60s and 70s and in our case my dad is one of four and he came here to study because education was critical to him and his family and he started as a professor and like just being able to study whatever he wanted at some of the best schools was like that was reason enough to leave his country and his family at 19 and come out here right and so he like became a professor and then eventually started a company and you know I learned a lot about running a company obviously from him but it's exactly what you said it's like you see an opportunity somewhere else you go there with nothing and you build something from that starting a company is a little bit of a microcosm of that right like there's nothing there and you create something from it that's what the Immigrant story is there was nothing there they came here with nothing and they created something from it and so I think we we see that in our parents and our grandparents and we say okay they started on you know in The Dugout and they got to second or third base and now what can we do we started on second or third base and can we hit a home run and then what do we do with our kids you know like that's the dialogue that runs through our head or at least for me yeah yeah no I mean I I think that was definitely a big dimension for me I mean the only other thing that was crazy for me was that um my father actually really struggled with alcoholism okay so we actually grew up like sort of working class I mean my mom didn't have language ability okay and um as a result she could never pass the tests to be Beyond like a nurse assistant okay so my whole childhood she had to work like two jobs more or less like at nurse assistant wage which is close to minimum wage and so you know that that's like a whole other dimension for me so what does that do for you like on a daily like how do you process that how do you like you must leverage that somehow in your mind to do what you've been able to do since then I think the trickiest thing is realizing how rare that story actually is and then I spent most of my time acting like it wasn't a part of me and then now I realize no I that's actually when I make decisions like big or small that's sort of in the background right and it actually you know since we're on the topic of you're how do you live your life I realize you know for instance I didn't you know get married and you know have children until much later in my life specifically because of that like I never wanted to be in that situation that seeing my parents fight over money like constantly because there just wasn't enough yeah sometimes it was like you know a six pack of beer versus like dinner for the family right and so I never ever wanted to be in that situation so like clawing and getting to a point where like I solved the money problem to steal a phrase from Paul Graham's essays it's like that was really important to me yeah it becomes it this goes back to the point about it being an unlock right so my guess is that for you wealth was never uh goal it's sort of a byproduct that's come out of all the great work that you've done and so you know you're saying like you wanted to make sure that you were financially secure before you started a family okay like that makes a lot of sense but what keeps you going is not my guess the accumulation of wealth what keeps you going is a curiosity and you love the work that you do and then wealth is a byproduct of that and that's that's how I thought about it I remember so the first time that I saw an amount of money that I didn't know what to do with was my first company active was a digital Fitness Company we're growing pretty well and I took some secondary off the table because you know we've grown 5x year over year and we raised another round and you know everything was going well so I took some secondary off and I remember like feeling very awkward because I didn't know who to talk to about it and I could go to a friend but then you're sort of bragging right like oh look at all this money how do I like what do you think right you can go to sort of your parents or your parents friends but that's a little weird because they have very different incentives than you do or you can go to a wealth advisor right and it's like I go talk to the Goldman guy and the Morgan Stanley guy and all those folks and they didn't get it at all right they're like you know older and just used to a different type of client and a different mentality and different risk and everything and so it felt a little like unnerving where you're like I feel like I have a responsibility now I've been given this gift of some money and want to think about what to do about it effectively and I don't want to squander it so where do you turn and we can get there but like this was part of my inspiration for starting the cotery is like there has to be a resource a tool for people like me who are or people like you who are building who are ambitious who see money as a way to help them achieve the things that they want to achieve as opposed to money being the end goal itself and there's a way of not only building products that are relevant to people like you and me but also a way of delivering those products and a way of interacting with the customer and everything else that we interact with in our life is of such high quality such high caliber so much software and thought has gone into it and then there's like finance and it's like oh my God like I have to deal with like this thing and I have to get three different wet signatures and I have to do this and then it's just like it's this part of our life that we don't want to spend time on and so I said if we built a company that unlocks these Super Creative super powerful super ambitious people and I make their lives a little bit easier by taking the financial management off of their plate you know we could we could unlock Gary tan to be Gary tan 2.0 like you know if the cotery was around 15 years ago it presumably would have been very helpful to you you know in the last 15 years into the people that are watching the show and so that's where I felt like there was a need to build something for people like us and you look so far so good but it's early so earlier we were saying that about a third of the wealth is actually built wealth not inherited or you know somehow through financial engineering you got there right yeah and uh it's funny that my experience with wealth management is somewhat similar in that I talk to some people who were claimed that they could pick equities better than the hedge funds and that was like sort of a startup and then way over on the other end is sort of talking to a bulge bracket wealth manager who you know really is built for that you know two-thirds like they don't really even speak the language of what's preferred stock what's common stock like how do I even get liquidity for you right and then I was able to find you know someone sort of in the middle yeah and then even then they had to believe that I could turn into ultra high net worth and that was like sort of a chance for them right okay so this is amazing because this is where software comes in so the issue that you encountered is the same issue that everyone encounters when they first deal with the wealth manager and it's not their fault the problem is that a wealth manager or an advisor is a human being that does not scale and so they can't afford to be wrong because there's massive marginal costs associated with servicing you so if they service you before you're at a level where you're profitable and then it turns out that you're not profitable they just wasted a bunch of time but that's not fair because it's not your job to do that right like you need advice you need guidance you need access at any level it shouldn't matter that you need to reach a certain level for them to care about you so what we realized is software just like every other industry can be a massive unlock in finance so what we do is we service Folks at a much earlier stage so you can have a credit investor is our starting point which is 200 000 of annual income over the last two years and that's still like pretty high relative to America but it's far lower than where most Wealth Advisors will start spending time with someone and so our philosophy is we want to build decades-long relationships with our members and the way that we're going to do that is we're going to provide products that are relevant to them at different stages in their life so a lot of the people that we have to start with are 25 years old working in finance or working at a startup and they have a salary and they have some rsus and they get to 200k so they fit the bill for us and there's a set of products that are relevant for them at that stage maybe they want to invest a little bit maybe they want to borrow a little bit of money you know maybe they're thinking about uh diversifying a little bit then as you get older you know you you get married or maybe you start a company and then maybe you have kids and you do your estate planning and then you have a big liquidity event and you need to do something specific with that Capital but we can do all those things because our marginal cost of servicing someone is basically zero because everything is distributed through software so the worst case scenario for our business is that someone is slightly less profitable than someone else and because of that we can attract really really high quality people very early on in their career years and we don't need to hope that they become super successful and then become profitable down the road because what ends up happening is you don't want to treat someone as a transaction right the goal is not like hey I'm doing you a favor by servicing you before you are at the band that I usually care about like that's a horrible way to start a relationship you want to provide them with value additive services at that point without the expectation of a future payoff otherwise you're just in sort of a sales kind of role and that's not that's not fair for the client when you think about managing the wealth that they've accumulated so we haven't seen anyone bring software to this industry and we you know feel pretty confident that by bringing software to it we can make it a high margin business which is not just good for the company it's good for the customer as well that makes sense what are some of the things that you know should be top of mind for someone who's sort of like you know either a Henry or about to become you know High net worth yeah so I think think the key question you have to answer for yourself is what do you want to do with your money right so some people are in the wealth accumulation space and I understand that like maybe they grew up you know money insecure and they say I want to amass and save as much of it as possible like that's totally respectable some people say I want a super high risk strategy I'm super confident in my future earnings so today I want to invest as much as I can and all kinds of stuff other people say like hey all I want to do is buy a house that's like my primary focus so you have to answer that question for yourself about what do you want but there's some basic things that I think you know are smart for almost anyone to do one is diversification so a lot of your folks listeners I assume are going to be like startup people or you know investors and we tend to have a lot of our wealth Consolidated in one highly liquid asset that's not great financial management uh that I think anyone will tell you and so thinking about diversification into other Investments other companies other asset classes is really important so that's one of the things the codery does is we offer you the ability to invest in funds that are more Diversified than any specific company Equity two is estate planning so a lot of people think that estate planning is something that should be done much later in life when you're older and wealthier but the best time to do your estate planning is actually before any of your assets have appreciated in value so it doesn't matter if you're married or if you're if you have kids if you have a job where you have either equity in the company or carrying a fund or any kind of ownership you should do some estate planning very very basic stuff just like a revocable trust and put some of your Equity or carry in there it costs a couple thousand bucks to create it but it's really worth it if you ever get sued if you ever want to see like tax savings down the road if you get married and then get divorced there's like a whole bunch of protections associated with it the line that I have heard from really smart lawyers that I think is true is everybody has an estate plan whether you know it or not if you don't have one that you've created the state imposes one on you so you don't want to rely on the state's state plan you want to build your own so estate planning would be a second one and then a third one is going back to the point about thinking about what you want is uh for some people borrowing can help enhance their goals because liquidity and lending is hard to come by for Founders because traditional Banks don't give a lot of credit literally for private company equity and so if you're confident in future earnings if you're looking for leverage if you have a low cost of capital borrowing can help you reach your goals faster so those are some of the basics to think about but again it depends on your specific goals yeah one of the craziest thing about the ultra high net worth thing is that banks will just give you sort of you know a few points on top of Libor just as margin account and it's like super cheap lending but you have to be rich in order to even have access to it which seems very unfair totally unfair and like how do you break into that group if you don't have access to the products that they have access to it's an accelerant as an accelerator especially if they got their money from inheritance or something else right like if you didn't have to build your way up to that it's a very different conversation and so when we talk about the wealth Gap in this country bringing access to the products that are available for people with 100 million plus done to people who only have only have 200 000 plus hopefully unlocks a set of freedom and tools that helps you get up to that level how do you think about like the barbell because that's sort of my strategy when I think about you know there's sort of stuff that is hyper risk yeah and then you know this is stuff that you either is going to go to zero or maybe a 10 or 20x or 100x or a thousand X whatever it is yeah so I think it totally depends on how much discretionary income you have right so like if you have if your life so to speak is covered your expenses are covered by your monthly income or whatever that is then you have this set of money to play with then it becomes generally a barbell strategy uh works well part of the reason you know one one part of the barbell is you're safe right treasuries like it'll always be their kind of money and then way over on the other end is like let me go crazy on like you know what kind of crazy return can I get and so on the crazy return thing the key part of that is access to those deals right so you have access to them because you've built a foundation for them a lot of the people listening to the show may not have access to this deals and so we realized early on that providing access to really high quality Investments was a deal breaker for a lot of people because they just couldn't get access to them even if they wanted to pursue that strategy and so bringing access democratizing access to those really high quality Investments you know can unlock someone's ambition in terms of building that barbell strategy yeah I mean one of the things you do for instance is get people access to venture capital funds that normally people can't get to I mean the irr is so we we provide access to initialized for example we provide access to uh injuries and Horowitz we provide access to a few other funds of that caliber and one you know a retail investor generally would not have access to those funds and two if they did the minimums were you know 25 million dollars or whatever it is and so we'll provide access for as little as twenty five thousand dollars and if you look at the irrs of those funds irr stands for internal rate of return which is basically just looking at the return that the fund generates over several years compounded it dramatically exceeds any place else you can park your Capital right like s p NASDAQ certainly treasury is a 401k like it doesn't matter if a 25 year old had to put you know 100K and to initialize 10 years ago versus put 100K into basically anything else they would have done a lot better and initialized and 10 years ago they didn't have access to it so fine they didn't do it but today when someone is starting out we want to get them access to these funds so that they can realize their potential sooner by getting better Returns on their Capital yeah it's sort of a pretty obvious uh sort of Gap in the market if you think about it because Venture Capital historically is for sort of like long-dated endowments that sort of don't care on duration that's the classic like David Swenson Yale model of endowment investing like endowments don't care they just want the money to go you know they don't need it right away they can only sort of live off the interest spend like five percent anyway per year right yeah so you know the funniest thing is that means that if you're young you're actually the best candidate to you know actually enjoy the benefits of being in a venture capital firm because it still takes you know 10 to 15 years of liquid to get liquidity on you know whatever the investment is and yet like you have to be inherited wealth and already have it or you know if you're built wealth you might be much older and like by the time you actually see it you'll have already retired and maybe it works out but it just isn't that good a product comparatively the other thing that's interesting is if you look 30 years ago a lot of the way that wealth was built even in that other third was staying you stayed in the same job for 20 30 40 years sometimes until you retire and in sort of the Twilight part of that is when you made enough money that you could you know build wealth off of that our generation doesn't do that we're changing jobs every three to five years we're sort of taking our 401ks with us here and there we have Equity that is actually a larger part of our compensation than our salaries and so when you have a a 25 year old today who's changing jobs every couple years and whose comp is going up not by three percent a year but by 10 or 15 or 20 a year because of bonuses because of job changing Etc when you have a high degree of certainty of your future earnings allocating your capital in a way that is more long-term thinking like venture capital is really really smart right so when we were growing up a lot of the advice that we got around how to manage our money was based on a different set of expectations about how you earned money because 30 years ago we earned money very differently for us we earn money in a very different way and so we have to adapt our strategies based on the way that we have money coming in the door as opposed to what it was 30 years ago one of the things that's really different about what you're doing versus like a robo advisor for instance is like this is sort of tailored to like future built wealth in a lot of ways right a robo will say just you know low fees throw it in s p that's the best you're gonna get yeah I think if you if you want that there's a lot of good products out there already that cover that our our pitch is a little bit more to to the idea of someone who wants to manage their own wealth and their own Financial profile so like one of the things we learned going back to the conversation around second generation immigrants is as they have built their wealth a lot of them have decided to maintain control of it so I read this amazing stat that if you're under the age of 45 and you have over half a million dollars there is a 70 chance that you are managing your own wealth that was not true 20 years ago or even 10 years ago so more and more people are controlling their wealth and so the coteries play is not advisory the coderies play is access where we say Hey you probably have one to fifty million dollars of total net worth and maybe you're interested in investing in some companies or in funds like initialized maybe you want to borrow maybe you want to do your estate plan but you're not looking to just say like hey please take care of this for me that's a different profile and more than the wealth level it's a different different personality type and it's a different ambition and a different sort of where am I going next kind of thinking so we're looking for the person that still has their hands on the joystick and is like super interested in their own Financial profile and learning about new companies and wants to take risks wants to develop their uh a barbell strategy yeah it's funny to think about wealth management because there's really two different concepts at play and then most of the things that exist already are very focused on beta it's like don't pay too many fees to people who are dumb who are not going to get you better than just what the Market's going to give you anyway right and then there's this other thing that like frankly I think very few people end up having access to or thinking about which is Alpha exactly it's like what are the things that you uniquely can get access to and you know if you can get access to it like it's pretty awesome the the the it's such a good point the feedback you always hear is like you can't outperform the market so don't even try to put your money in an index fund the problem with that argument is that is assumes that you don't have access to the people that do outperform the market like initialize and all the other funds out there so if you can get access to those that are alpha creators as opposed to just following the beta you can have outsized returns and how do you get access to them historically you have to be really wealthy or really well connected that's where companies like the cottery come around and unlock that access much earlier yeah what the other thing that's interesting about like future built wealth is that often they are product managers or designers or Engineers themselves yeah and I always think about you know Peter Lynch's classic about you know invest in the brands that you uniquely know and understand because that's how you beat the street well you you you build the products that you want to see in the world right so like a product is a when you build a product you have a perspective on the world so every product that you build is a perspective and if you engage with the world in a way where you're identifying like how come this thing doesn't exist how come that thing doesn't exist then you're naturally just going to be building products that solve those problems and the more that you see by getting access to funds or companies or ideas earlier the more like inputs that you have to allow you to make those decisions and that's that's the coolest thing about this is like if you can unlock someone's sort of creative flexibility by giving them enough money or by by helping them reach their goals then they're going to go build these things because they have the ability to do those otherwise they have to work in a job because they have to just live by their salary so Ethan what would someone do to sort of get involved and you know try what what you're working on yeah so the best thing is just to go to our website uh thecotery.co and sign up for our waitlist uh we're adding new people every day we have you know the products I mentioned investing lending Estate Planning and others coming but our website's the best place to find out more that's awesome thanks a lot for joining us today thanks for having me Gary [Music] thank you [Music] [Music]

Channel: Garry Tan

Views: 44,750

Keywords: Garry Tan, Garry Tan vc, initialized capital, Garry Tan initialized, Garry Tan initialized capital, Silicon Valley vc, sf vc, a16z, Andreessen horowitz, best Silicon Valley vcs, How To Get Rich, The Coterie, Ethan Coterie, how to get wealthy, how to build wealth

Id: QumT0Dfsx8g

Length: 27min 27sec (1647 seconds)

Published: Thu Jun 08 2023