Equity is not money (yet)

Not financial advice. Patterns, not prescriptions.

Every founder I know has the same blind spot: they look at a net-worth statement that's 60% equity and act like they're rich. They're not. They're concentrated.

Equity is a claim on a future liquidity event. Until that event clears, it isn't money, and the lifestyle decisions you make as if it were can quietly cost you the runway you need to actually realise it.

The three buckets

I think of an operator's balance sheet in three buckets:

1. Spendable: cash, ISAs, anything you could convert to spend within 30 days without a tax penalty or a market timing decision.
2. Allocated: pension, EIS, S&S ISAs, index funds. Compounding, but not your spending money.
3. Concentrated: your equity in the company. High-variance, illiquid, possibly worth zero.

The rule I run by: my fixed costs for the next 18 months should fit inside bucket one. Not bucket two. Not bucket three.

If they don't, your cash isn't running the company, your equity story is running you.

Why this matters mid-cycle

Markets compress. Round timelines slip. Exits get delayed by 18 months as a matter of course. Operators who structured their personal finances assuming the next round would close on schedule find themselves making decisions from desperation.

The fix is cheap and unfashionable: hold more cash than feels reasonable, especially when the cap table looks great.

The reset

If you've been treating equity as money:

• Pull a real net-worth statement, marked to the last realised price, not the 409a.
• Apply a 50% haircut to anything not in bucket one.
• Stress-test: can you fund 18 months of fixed costs from bucket one alone?
• If not, reduce fixed costs or rebuild bucket one, quietly, over months.

The founders who survived the last cycle weren't the ones with the best cap tables. They were the ones who, three years before the downturn, had built bucket one big enough to absorb it.