These Israeli techies struck it big overnight. Then the problems started

Every morning finds Yankele on the beach in Tel Aviv, playing paddleball and swimming. Years ago he had worked at a Silicon Valley company. He loved the work but hated the hours and ultimately decided to return to Israel after nine years because he wanted the kids to be Israeli. Also, shares he received from the company enabled him to retire at age 49 and devote his time to his family.

“I don’t understand anything about money and it doesn’t interest me,” Yankele says. “At first I tried a few investment consultants, but saw that they don’t understand the first thing about it.” In fact he did the opposite of what every investment consultant everywhere counsels: he didn’t diversify. Now in his seventies, all his money is still invested in the same company. “I get dividends and occasionally sell shares. We live wonderfully, comfortably but modestly,” he says.

In his case, having money enabled him not to occupy himself with money. But with big money, one may find unfamiliar dilemmas, new difficulties in relationships with family and friends, and one may need to make decisions about how to live one’s life.

‘The problem starts to escalate when you begin to spend the money on things you don’t really need – a bigger house, a fancier car’

Hi-tech sources assess that tens of thousands of Israeli families have received “life-changing” amounts of money, say half a million dollars or more, in recent years. Some have made hundreds of millions of dollars, becoming wealthy at world-class levels, a venture capitalist says. The strains involved can also be pretty extraordinary.

Poor little rich entrepreneurs

”For years I tried not to think too much about selling the company, because if you’re in a constant stage of anticipating a big reward, life becomes depressing,” says S., a man in his 30s who had founded a company that was sold for millions of dollars. In fact he tried not to think about it until it happened. When it did, he felt great; and began to consider what to do with the money.

He was already living comfortably, renting a small apartment in Tel Aviv, walking distance from everywhere. Suddenly he was talking with bankers, wondering if his appetite has grown and to what extent, and if he wants to become involved in the lives of family and friends, insofar as they want it.

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“My parents, for example, are elderly and still work full-time. I also have a relative whose financial conduct is problematic; is it appropriate for me to intervene? I don’t have any conclusions yet, just principles,” says S. He would like to improve the lives of people close to him, he says, but is aware of the risk of creating a new, potentially harmful interpersonal dynamic. “Two or three people have already come to me with horror stories about cases where friendship got mixed with money and it ended the relationship,” he says, and end he would rather avoid. He means to keep working: from the perspective of values, he wants the company’s buyer to get value for his money.

‘When people have a lot of possibilities, like after suddenly coming into wealth, it creates a paradox of choice’

Another company founder who sold about 10 years ago, when he was in his early 60s, says they didn’t change their life: “The only thing we did was buy cars for each of the children. We are conservative. Of course there were things we permitted ourselves more, but nothing ostentatious. I believe that even if you’ve created assets, and even if you want to change your way of life, you should do it gradually. In effect, I stopped working for my living. I didn’t need to go to work every morning. This exacts a price in that you lose a large part of your social life. You’re used to getting up every morning and meeting the people you work with and your life is filled with this. Suddenly you need to fill up your life with new content.”

A venture capitalist spells it out: it’s better to have than not to have. He began to have in stages, starting about 20 years ago. “The problem starts to escalate when you move from a state of ‘what fun, I’ve paid off the mortgage and I’m traveling abroad more,’ and begin to spend the money on things you don’t really need – a bigger house, a fancier car and more,” he says.

True, people everywhere buy things just because they feel like it, but the problem is the growing gap with your close environment. “I compare myself to my brothers, all of them people with good careers, and we are living in different universes,” he says.

Does he have advice for newly enriched? First of all – don’t fritter it away. “What do you do if 10, 20, 50 or 100 million shekels arrives? What does a kid from Givatayim do whose parents are paying a mortgage and one fine day he becomes a millionaire? Israel has whole industries to support people like this, lawyers and money managers. By and large the newly tech-enriched in Israel don’t go to a casino and blow the lot on blackjack, or do blow with movie stars: they pay off their mortgage and travel.

Secondly, don’t ruin your life. Think how to handle relations with your best friends, and the kids, advises the venture capitalist. It’s not easy; but, in his opinion, it isn’t healthy to overdo false modesty either. “If you love motorcycles, buy a motorcycle!” he advises: there are ways to balance being wealthy and being unpretentious.

Another issue is social responsibility. “I think there’s an obligation to give back and pay taxes,” says the venture capitalist, who admits to an aversion for “tax planning.”

New money, new problems

Sometimes the grand exit from a startup does not generate the expected “better life.” Yes it’s nice to have money and buy nice things but having met several people who became significantly wealthy from high-tech, the newfound wealth comes with problems that need to be recognized, says clinical psychologist Roy Samana.

“A person who sells his company often discovers that the sale hasn’t changed his life, not for the better in any case. In addition to the new problems the money brings with it, he is dealing with the same problems, be they family problems or couple relationship issues,” Samana explains.

One common problem is envy, or the perception of it. “Suddenly it seems to me that my friends may be looking at me differently, or expecting monetary benefits from me,” Samana explains. This may even affect couplehood, if the life partner is earning much less. In the case of singles, they may start wondering whether people like them or are after their moolah, creating new complexities, says Samana. And, when someone gets rich: the family – overtly or otherwise – are likely to start fostering expectations.

Sometimes things change less than one would expect: “If for example, you ‘think poor,’ you’ll continue to think that way even afterwards,” he explains. “The inner sense of abundance or scarcity doesn’t change significantly in the wake of objective changes. It’s surprising to find that one’s inner world doesn’t change quickly even when the bank account swells. It’s a lot less glamorous than it looks from the outside or in the fantasy.”

And some things don’t change at all. According to Prof. Shahar Ayal, head of the master’s degree program in social psychology at the Interdisciplinary Center of Herzliya, an event of major significance, good or bad, may sway happiness in the short term – but then one adapts. “If all of a sudden I get a windfall, the change is significant but over time there is adaptation. If before I had tensions with the boss, things may look rosy now but I’ll have tensions with the boss in the future too,” Ayal explains.

“When people have a lot of possibilities, like after suddenly coming into wealth, it creates a paradox of choice– the fear of losing alternatives and the desire to maximize all the time. Also, remember that people act according to reference points. So if I compare myself to my family, my getting rich is a huge leap – but I spend most of my time at work and others at work also made a big leap, so my reference point stays the same. People react not only to what has happened to them but also to what has happened to people near them,” Ayal says.

The bald and the beautiful

A new wrinkle in the world of the wealthy is that in the case of huge hi-tech exits, a whole group is getting rich together – and when the workers start feeding each other information, things get very messy very fast and it does not go well, says Dan Dobry, chairman of the Union of Financial Planners in Israel and owner of Global Investment Solutions.

People coming with 20, 30 and even 100 million shekels are silver-haired or bald. But today thanks to hi-tech, some are kids, with a few million shekels in hand. “The first thing these people do is buy apartments, but also fancy cars and luxury goods – things that augment the quality of life but only transiently,” Dobry says. They may be squandering money unsustainably.

So if you strike it rich, Dobry advises – first of all, do nothing. “Put the money in a deposit and digest what happened,” he says. Next: hire experts. Don’t look for superb investments: build asset allocation based on, first of all, what you want to achieve from life. “Once you’ve started to define your goals in life, you’ve started the process of becoming the person you want to be. Then you study your resources and allocate money in accordance with your goals.”

Other tips: create passive income; build an emergency deposit – money that will be liquid at the press of a button, and diversify. Put money into multiple places: Nothing is certain. “Even things that look completely safe, like a deposit at the bank, are not 100 percent,” he cautions.