Cash Flow Beats Venture

Andrew Wilkinson shares his perspective on the trade-offs between venture investing and owning cash-flowing businesses, based on his 10+ years of angel investing experience. He believes that while venture investments can provide good returns, owning operating businesses offers superior capital efficiency and psychological benefits.

Key Points:

• Venture Investment Drawbacks:

  • Capital is locked up for 10-15 years
  • Can't compound returns during lockup period
  • Paper gains don't provide same psychological benefit as cash flow
  • Some investments made at unrealistic valuations ($100M+ for $4M revenue companies)

• Benefits of Operating Business Ownership:

  • Generates immediate cash returns of 15-30% annually
  • Can actively compound returns by reinvesting cash flow
  • Provides tangible feeling of wealth through regular cash generation
  • More control over outcomes compared to venture investments

• Strategic Shift:

  • Moving focus toward buying and incubating businesses
  • Prefers steady cash returns over potential venture upside
  • Still does venture but with different expectations
  • Values ability to "feel" wealth through operating business ownership

• Psychological Aspect:

  • Big difference between owning stakes in venture-backed companies vs operating businesses doing $50M in EBITDA
  • Cash flow provides more tangible sense of success
  • Regular returns allow for continuous reinvestment and growth

The core insight is that while venture can provide good returns, the inability to actively compound capital and the psychological impact of illiquid investments make operating businesses a superior wealth-building strategy for Andrew's goals.