Is startup investing right for doctors?

Jonathan Ford Hughes | January 10, 2022

For many physicians, startup investing is an irresistible, shiny object. Choose the right startup, for example, and you might build ground-floor equity in the next Facebook. It’s more probable, however, that you’ll choose the next Friendster and end up with nothing.


A physician leaves a boardroom after a business meeting.

There’s no disputing that startup investing can be lucrative, but it’s not without outsized risk.

There’s no disputing that startup investing can be lucrative, but it’s not without outsized risk. Consider, for example, that according to Investopedia, the failure rate for startups in 2019 was about 90%. About 22% fail in their first year, half fail by their fifth year, and 70% never see their tenth birthday. 

Go on, think twice—it’s alright

Keep in mind, we at MDLinx are not financial advisors, nor do we play them on the internet. Nothing in this article should be considered financial advice. For the curious among you, however, you may be wondering for whom is startup investing an option worth weighing? 

In short, it’s the financially risk-tolerant physician.

Doctors who can consider startup investing have their financial basics mastered. These physicians have generated wealth via more conventional avenues, such as their salaries and standard investments, and they’re looking for an edge to accumulate life-changing or intergenerational wealth. They’ve learned to crawl (saving), then walk (basic investing), then run (self-managing their investments), now they’re ready to take on some financial hurdles. 

Those basics include fully funding tax-deferred retirement accounts, fully funding a Roth IRA (if applicable), and perhaps fully funding an HSA. If all of that reads like alphabet soup, get off AngelList and read this post first.

If you’ve done everything described above, you can consider startup investing. But should you? 

Consider, for example, that the S&P 500’s annualized rate of return has been more than 10% since 1957. Compare that with the 10% startup success rate highlighted at the top of this article, and you begin to see why a physician startup investor must be financially secure.

A good rule for startup investing is that if you think you might need the money at all, then don’t put it into a startup. In addition to the high failure rate, illiquidity is also a deterrent. Consider stocks. If you need cash, you can sell your holdings any time the market is open. Invest in a startup, and your money will be inaccessible for years. 

By comparison, even real estate is a more liquid form of capital—and think about what a logistical nightmare it is to sell a house! 

Your options

You’re really serious about this, huh? You should probably know what you’re legally allowed to do. A more entry-level option for aspiring physician startup investors is crowdfunding on sites such as Kickstarter and IndieGoGo. In crowdfunding, large groups of people pool their money to support new business ventures with the hope of exponential growth of their principal. By relying on more investors and smaller investments, crowdfunding diminishes some of the risk in startup investing.

But it’s still risky! So much so that the SEC restricts who can crowdfund for investors. For example, if you make less than $107,000 per year, you can only invest up to $2,200 every 12 months, or 5% of your annual income or net worth—whichever is greater. If you make $107,000 or more, you can crowdfund up to 10% of your yearly income or net worth—whichever is less. You cannot, however, invest more than $107,000.

Some doctors may even qualify as accredited investors. Accredited investors have access to investments that are not publicly available. For example, an equity is an investment that’s available to all people with sufficient money and legal standing. However, investments such as hedge funds and venture capital are not. Why? Once again, because they’re risky! 

The accreditation process is the government’s way of protecting investors from themselves. Your principal investment may grow exponentially, but it may also go to zero. 

As an accredited investor, you also have access to angel investing. Angel investors are also known as private, or seed, investors. They typically have high net worths and will fund new ventures. In return, they receive some ownership equity. Essentially, they buy in, assume the risk, and if the business takes off, they get paid as long as the business exists.

To be an SEC accredited investor, and subsequently an angel investor, you must: 

  • Have a net worth north of $1M, or …

  • Have made $200,000 per year for two years, or …

  • Have a combined income with your spouse of at least $300,000.

With the median US physician salary standing around the $200,000 mark, you may be eligible for accredited investor certification. And, you’re likely clear to crowdfund. But—one more time for emphasis—proceed with caution!

The upside

Given the risks, you might be wondering why any physician would invest in a startup. Well, consider the potential rewards. 

Take Spotify. The Swedish venture capital firm Creandum invested $4.5M in the music streaming service back in 2018, when Spotify was valued at $29.5B. The firm made $370M, or about 80x their initial investment, according to CBInsights.

The other physician-specific motivator for startup investing is specific knowledge. Consider the explosive growth of the digital healthcare space, which has been spurred by the pandemic. In July, Forbes reported that digital healthcare startups raised nearly $15 billion in the first half of 2021—which was more than all of 2020.

Necessity breeds innovation. And in this case, innovation requires clinical knowledge, which doctors have in spades. Serious physician crowdfunders and angel investors could leverage their training to get in on the ground floor of the next game-changing healthcare company. Or, they could simply support a company with a mission or device that they really believe in. 

Additionally, healthcare-specific angel investing firms have arisen, and they often need physician advisors on their boards. Take AngelMD, for example. On their board, you’ll find Edward Zuckerberg, DDS, who’s the dad of, you know, that other Zuckerberg guy.

The bottom line

Should you or shouldn’t you consider startup investing? Once you clear the regulatory hurdles, it’s ultimately up to you, doctor. 

At a minimum, the case for startup investing among doctors highlights the power that comes from having your financial house in order. Master the basics, and more opportunities—the type that can generate life-changing wealth—become available to you. But, in this case, great reward comes at a great risk.

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