Concentration Risk After Selling a Business: How to Check Yours

Selling your company, or some of your shares, doesn't always spread your risk. I see many cases where people who sold their businesses and had money were still heavily invested in the same type of risk: business ventures, equities, and individual investment strategies that showed good performance but unfortunately not for too long.

Where does the money go after you sell a business?

Many start angel investing or invest in friends-and-family deals. Some start another company. And for some, part of the price hasn't turned into cash yet: it came as the buyer's shares, or as an earn-out that only pays if the business hits its targets.

Michael Sonnenfeldt, who started the investor network TIGER 21, told Columbia Business School researchers: "An entrepreneur's instincts are to over concentrate and take unwarranted risks."

Why founders' money ends up in one bet again after a sale

Each new investment feels like a separate decision. But if several of your holdings would drop for the same reason, they're really one bet. That usually happens because:

• You know one industry well, so you feel able to judge deals there.
• You hear about most deals from people in your old industry.
• You trust what has already made you money. But that doesn't mean it will make money again.
• Part of your sale price may still depend on how the buyer or your old business does. Plenty of sellers are in that spot: in SRS Acquiom's 2025 figures, more than a quarter of private company sales were paid at least partly in the buyer's shares.

Setting your investment criteria after a sale

Others, on the other hand, don't know where to start, feel insecure because they have a large sum of money, and aren't quite sure how to deal with it or manage it. They're naturally afraid of losing it and don't know whom to trust, but they realise it is now their responsibility to manage it.

You'll still get pitched, mostly by the same people as before. Even family offices with full-time staff get swamped, and The Family Office Association's advice to them works for you too. Before you read any pitch, decide:

• which industries you'll look at, and which you won't
• how big a cheque you'll write
• how much of a company you want to own
• the most you'll put into deals like these in total

With those written down, you can turn down most pitches without reading past the first page.

When is concentration risk worth taking?

If you aim for "F**k You" money, it usually comes from an asymmetric, highly concentrated bet. I wouldn't bet all my money, but I think it is OK to hold a highly concentrated position in a business or investment you understand very well, probably have some control or influence over, and are willing to take a longer time view with high conviction.

Knowing the industry does help, but it's no guarantee:

• A 2007 study of 539 members of angel groups in North America found they made about double the return on companies in their own industry.
• But half the companies they backed were in industries they hadn't worked in, and they lost money on 52% of all their exits.

So I think one of the most important things is to allocate capital that can support your income expenses. When you start investing, there will inevitably be ups and downs. So it's always important to protect the downside.

How to check your own concentration risk

Do it from memory first, then check it against your statements.

1. List everything you've bought or backed since you sold, including the buyer's shares and any earn-out.
2. Next to each one, write the industry, the country, how fast you could sell it, and who else you know is in it.
3. Circle the ones that would drop for the same reason, like a bad year in your old industry or trouble at the company that bought yours.
4. Treat each circle as one holding, no matter how many cheques went into it.
5. Check that what sits outside the circles could cover what you spend if every circle had a bad year at once.

And if you reply to this email, tell me one thing: what money question has nobody answered straight for you?

On the Radar

Selling before the 28 October Budget? The contract date matters for tax.

Chancellor John Healey said in a Sunday Times interview that the UK has the "lowest capital gains tax" among Europe's G7 countries, and two cabinet colleagues want to raise it. Nothing is decided. For tax, HMRC counts your sale from the day the contract is signed (or its last condition is met), not the day it completes, which can be months later. If you're mid-sale, ask your lawyer to confirm the date on your deal. Read more →

Private fund stakes can be hard to sell, even for family offices.

RBC and Campden Wealth surveyed 155 family offices, mostly in the US. Almost one in five with money in private markets tried to get out of a fund this year, and nearly half couldn't do it the way they expected. If your sale money is going into a private fund, ask how you'd sell your stake later and whether the manager has to agree. Read more →

If you live off your portfolio, an early crash can set you back for years.

Say you have €10m and take out €400k a year for living costs, as in Jan Voss's example at Cape May Wealth. If it's all in shares and they halve right after the first withdrawal, you're left with €4.8m. A mix that drops 25% leaves about €7.2m. From €4.8m, even 8% growth a year can't cover the €400k. Work out what your own mix would be worth after a bad first year, and whether it would still cover what you take out. Read more →

Staying with the same bank and insurer can cost you money.

Marc Rubinstein at Net Interest let an AI app loose on his car insurance. Overnight, it got quotes from other insurers and offered to move him to a cheaper policy. He argues that a lot of money in finance comes from people who never switch. You don't need an app for two quick checks: what your cash earns compared with the Bank of England rate, and what other insurers would charge for the same cover. Read more →

New on the Site

Once you know what you own, you can decide who looks after it. Last month's article compares four ways to manage your money, from doing it yourself to a staffed family office, and what each costs.

Read it: Four Family Office Models and What They Cost