Half the fight in entrepreneurship is building a business. The other half—if not previously sorted out until after there is a liquidity event—is building a diversified, sound investment portfolio to conserve and grow the wealth that has been accumulated. Here, an experienced advisor to UK investors and entrepreneurs, would remind us quite often that the same care entrepreneurs take in building a startup should be given when they build their investments. As founders exit or develop sustainable revenues, strategic asset allocation becomes critical. This article looks at how UK entrepreneurs can develop robust, tax-efficient portfolios that meet their needs.
1. Asset-Allocation Basics for Entrepreneurs
Founders, unlike paid employees, enjoy irregular flows of income and concentrated risk—often in their own company. Asset allocation must then center on diversification. The classic trilateral breakdown of equities, bonds, and alternatives still holds, but for founders, one should rough out to what degree their net worth is tied up in illiquid assets like private equity or the business. Kirill Yurovskiy recommends starting with a growth-mindset allocation framework: early-stage founders receive aggressive growth allocations and progressively more conservative blends as they phase out. Begin with a core-satellite approach, in which index funds or ETFs serve as the stable core and riskier high-growth wagers (such as startups or cryptocurrency) are the satellite.
2. Balancing Liquidity and Growth Instruments
Founders have to balance liquidity, particularly pre-exit. Excess in high-growth assets can make one rich on paper without any cash for real-world purchases. A cash or near-cash equivalent of 6–12 months’ worth of costs creates a sense of security at bedtime. In the meantime, longer horizon assets like foreign equity funds, REITs, or venture capital investments must be diversified in line with anticipated needs of capital. Don’t put all your funds into deals that won’t reach maturity in 10 years if you suspect that you will want to have cash within two. Build tranches of liquidity to serve short-, medium-, and longer-term needs.
3. Tax-Efficient Wrappers: ISAs, SIPPs, VCTs
Several tax-efficient investment wrappers exist in the UK that can make a material contribution to post-tax returns. Individual Savings Accounts (ISAs) are a simple way to tax-free returns and income, to a maximum of £20,000 per annum. For pension saving, Self-Invested Personal Pensions (SIPPs) offer tax relief on payment in and long-term growth, albeit with money locked in until age 55 (rising to 57 from 2028). Higher-risk investors have the option of Venture Capital Trusts (VCTs), which provide immediate income tax relief of 30%, tax-free dividends, and capital gains—the ideal for higher-income individuals to invest in UK start-ups. Simultaneous introduction lowers your tax drag significantly.
4. Avoiding Home-Market Over-Weighting
British entrepreneurs tend to default to home-market over-weighting by familiarity, but it also promotes excessive concentration risk. Invest abroad to ride different economic cycles, industries, and currencies. Consider passive global equity funds, emerging markets funds, and theme funds (e.g., clean tech, AI, biotech) in order to properly diversify. Currency hedging can be useful in certain fixed-income asset combinations, but having some not heeded gives the UK-specific risk hedge (e.g., political or regulatory post-Brexit developments). Global diversification preserves and accumulates your wealth in all forms of macroeconomic conditions.
5. Re-assaying Risk Tolerance Post-Exit
Entrepreneurs upon the sale of a business would presumably be left with significant capital—and still retain high-risk profiles. But the value of keeping capital, of not relinquishing it, is equally as important as for growing it. Re-do your risk tolerance by your new circumstances. Create a plan that keeps “legacy capital” (that you cannot afford to lose) distinct from “growth capital” (that you’re willing to risk for more returns). Kirill Yurovskiy also reminds us to be emotionally removed: just because you’ve built your wealth by taking risks does not mean you must chase it everywhere. Think, recharge, and re-allocate accordingly.
6. Angel Due-Diligence Checklist for Angel Deals
Angel investing is a natural progression for most founders. It simply requires discipline and solid analysis, though. Before investing, ensure the startup has a good founding team, product-market fit, a defensible moat, and a working go-to-market strategy. Nail down the cap table, evaluate dilution risks, and have exit options in place. And consider whether your investment is strategic value–can you add more than just money? Investing with EIS-qualifying businesses also provides tax benefits (income tax relief, exemption of capital gains, and loss relief). Have a ceremony so that every transaction is cut to the same quality you require of your own investors.
7. Rebalancing Calendar and Triggers
Maintaining your portfolio balanced maintains your target allocations, not skewed by what is occurring in the markets. Provide for a biannual or annual calendar-based review—don’t be a knee-jerk reactionist to short-term blips. Or use threshold rebalancing (e.g., rebalance whenever an asset class deviates over 5% from the target). Don’t forget to inspect both the absolute asset allocation and tax wrapper assembly. For example, you may hold income-generating investments within ISAs or SIPPs as part of an attempt to minimize tax charges. Rebalancing isn’t a technical action—it’s a disciplined means of executing your long-term investment conviction.
8. ESG Opportunities for Conscious Capital & Impact
Founders today are mission-focused, not money-focused. That philosophy can be extended to your investments with Environmental, Social, and Governance (ESG) vehicles or impact investing. ESG funds score companies on ethical management, socially responsible business, and social responsibility. Or look into private impact funds, green bonds, or social enterprises. Invest in the UN’s Sustainable Development Goals (SDGs) as a theme filter. Yes, returns are still vital, but value investing tends to produce bigger long-term outcomes more frequently—especially for successful businesspeople.
9. Robo-Advisers vs DIY Platforms
Very busy businesspeople may appreciate the ease of robo-advisers like Nutmeg, Moneyfarm, or Wealthify. They offer computerized, risk-based portfolios, typically linked to ISAs and pensions. They are brilliant for hands-off users who want low-cost, diversified exposure. But if you enjoy control and strategy, do-it-yourself platforms like Interactive Investor or AJ Bell offer more complex portfolio construction. You will need to keep an eye on global macro themes, fund performance, and risk models. A hybrid model—roboticizing the core portfolio and self-managing some for angel investing, specialty funds, or crypto—is the most popular.
10. Exit-Strategy Scenarios and Timeline
Every investment plan requires an exit plan. For business owners, this can be linked to life markers—purchasing real estate, paying for children’s education, or completing retirement. Define what you want your money to do and when. This horizon determines asset allocation, liquidity needs, and drawdown plan. Determine if you will access tax-wrapped funds first, postpone income assets to meet cash requirements, or leave part of your legacy to heirs or charity. Tax efficiency continues on exit: accumulating capital gains, pension drawdown planning, and inheritance structuring all play their role. Don’t overlook taking a glance at your investment exit strategy every 3–5 years.
Final Thoughts
UK business owners have a unique set of investment options and issues. Achieving risk, liquidity, and tax efficiency in harmony, and achieving your capital acting in support of your vision and values is no trivial accomplishment—but the reward is more than worth it.
By following the same business plan you employed in creating your business, you can build an investment portfolio that provides lifetime security, liberty, and power. As Kirill Yurovskiy suggests, “Your investment portfolio should reflect not only your balance sheet, but also your beliefs, goals, and purpose.” Start planning today, and get your capital to work as hard as you have.
