Money

Why Tim Ferriss saved $120,000 and then planned to lose it all

Author and entrepreneur Tim Ferriss
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Author and entrepreneur Tim Ferriss

Author and entrepreneur Tim Ferriss always dreamed of getting an MBA from Stanford.

It wasn't until he actually sat in on a class that he realized traditional business school wasn't for him.

Rather than give up on his dream entirely, he decided to create his own "real-world MBA." In 2007, he set up a two-year "Tim Ferriss Fund" of $120,000 roughly the cost of two years at Stanford's GSB which he would use for angel investing.

"I would aim to intelligently spend $120K over 2 years on angel investing in $10K to $20K chunks, meaning 6 to 12 companies in total," he writes in his latest book, "Tools of Titans."

The goal of this "business school" wasn't to make a profit. In fact, "the most important characteristic of my personal MBA: I planned on 'losing' $120K," Ferriss explains.

Author Tim Ferriss
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Author Tim Ferriss

"The 2-year plan was to methodically spend $120K for the learning experience, not for the ROI. … To learn as much as possible about startup finance, deal structuring, rapid product design, initiating acquisition conversations, etc."

Another key component of his curriculum would be "getting to know the 'students,' preferably the most astute movers and shakers in the start-up investing world," he explains.

While the "Tim Ferriss MBA" worked for the self-made millionaire "ultimately, startups became my golden goose," he writes you'll want to follow a few guidelines before diving into your own MBA program.

For starters, you have to be "100% comfortable losing your 'MBA' funds," he says. "I went into the 'Tim Ferriss Fund' viewing the $120,000 as sunk tuition costs, but also expecting that the lessons learned, and people met, would be worth that $120,000 investment."

And if you choose the angel investing route, "limit angel investment funds to 10 to 15% or less of your liquid assets," Ferriss advises.

Above all, "commit, within financial reason, to action instead of theory," the serial entrepreneur says. "Learn to confront the challenges of the real world, rather than resort to the protective womb of academia. You can control most of the risks, and you can't imagine the rewards."

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