Should You Tap a Nest Egg to Start a Business? Is funding your startup with your retirement savings ill-advised or smart investing?
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Like most entrepreneurs, John Krech doesn't follow conventional wisdom. After 20 years with 3M, he cashed in his 401(k) to launch ePhiphony, a Minneapolis software business that optimizes inventory management for QuickBooks users. But he spent two years developing and testing his product, RightOn Inventory, before he made his break from 3M.
While advisors recommended he leverage his savings with an SBA loan or investor funding, Krech preferred to use his retirement savings instead. Two years later, with Intuit and Microsoft as partners, he thinks he made the right decision.
"I've been offered seven figures for a controlling interest in the business," he says. "I recently calculated that if I'd left my funds invested as they were, I'd be up 35 percent right now. If I accept this equity offer, my return would total over 700 percent."