Nick Curum Challenges Founders on Diligence for Their Own Biggest Position

In a recent LinkedIn post, Nick Curum challenges business leaders and founders to apply the same rigorous diligence to their largest personal investment—their own company—as they would to any major client or asset. Curum argues that founders often overlook the concentration risk inherent in holding a significant portion of their net worth in a single enterprise, a risk they would readily identify and price for others.

Curum poses a series of critical questions that he suggests would likely expose the vulnerabilities of such concentrated positions if applied to oneself. He writes:

“Your biggest position would fail your own diligence. Here are the eight questions that would fail it: […] Would you let a client hold this?”

The post highlights a common blind spot in financial and strategic planning. While boards meticulously scrutinize significant customer accounts, often demanding detailed justification for any client exceeding ten percent of revenue, the founder’s own stake is frequently left unexamined with the same intensity.

The Unexamined Founder’s Position

Curum emphasizes that the founder’s ownership in their company is, by definition, their largest single position. He cites a survey by Long Angle, which found that 61% of the private and alternative holdings of 233 individuals worth $17 million were concentrated in the one company they operated. This statistic underscores the widespread nature of this phenomenon.

Drawing from his experience, Curum recounts instances where substantial assets were required to justify their existence, noting the differential treatment based on diversification. “A project with one offtaker never got the terms of a project with several. The gearing came down, the reserve went up, and nobody debated whether the concentration was deserved,” he observes. This illustrates how diversification impacts financial terms and risk assessment, a principle Curum believes should be applied internally as well.

Applying Diligence to Self-Investment

The core of Curum’s message is a call to action for founders to proactively assess their personal concentration risk. He suggests that the same eight questions posed to evaluate external investments should be answered in writing for one’s own company before the next board meeting. These questions probe critical aspects such as:

• The percentage of total assets invested in the company.
• The liquidity and timing of sale options.
• Contingency plans if the company ceases to generate income.
• The valuation methodology and its basis.
• The review process and frequency for the position.
• Protective measures against a complete loss of value.
• Contingency plans for significant delays in exit opportunities.
• The ethical consideration of whether a client would be permitted to hold such a concentrated position.

Curum argues that by rigorously answering these questions, founders can gain a clearer understanding of their risk exposure and potentially make more informed capital allocation decisions. He concludes his post with a challenge:

“Answer all eight in writing before the next board pack lands. Save this for then.”

His analysis suggests that a lack of internal diligence on founder concentration can lead to suboptimal risk pricing and potentially precarious financial situations, especially during uncertain economic times or when exit strategies face delays.