Recap: Wealth is the sum of all assets, minus liabilities and debt. Assets are specific items of value one owns.
Liquid assets are cash or “cash-equivalents” - items easily converted into cash without significant loss of value - such as bank accounts, money market funds and stocks - except for stocks (and bonds) that are prohibited by law or contract from immediate public resale. These “restricted securities” are typically held by company insiders, such as billionaires, with their wealth concentrated in one or a few companies.
Illiquid assets are investments or properties that cannot be quickly converted into cash without a significant loss in value or a lengthy, complex selling process. Examples of illiquid assets include real estate, private equity, venture capital, collectible art, and restricted securities. Even when legal or contractually allowed, selling Illiquid assets quickly is hard because these assets rarely have a ready pool of buyers and would likely require slashing prices, leading to substantial financial loss.
So where would billionaires get the cash to pay a wealth tax? Mostly from their liquid assets, which comprise around 31% or their asset holdings, on average (Altrata, 2024, Cato Institute, 2025). See Post I of this series for more details.
Method: I’m ultimately interested in how a billionaire wealth tax would impact the US economy and American people. To answer that question, even tentatively, requires answering a lot of other questions. My method will be to ask AI a question, review AI sources to confirm accuracy of response, and then tweak the AI summary for brevity, neutrality and relevance, occasionally incorporating AI information from related inquiries. I’ll generally use AI material from 3-4 sources.
I’m using AI in this series, because AI does a decent job of capturing the gist of its source material. However, I don’t assume the source material reflects the whole range of expert opinion on these issues.
Take-away from Last Post: The super-rich combine capital with expert mentorship, strategic guidance, and industry networks. They can fund high-risk ventures, allow entrepreneurs plenty of time for development, and manage failure - because they can afford to (and, for the most part, ordinary people can’t).
Question 6: What are the economic benefits of the super-rich investing in start-ups instead of institutional investors?
The investment of capital by the super-rich (high net worth/ultra-high net worth individuals) directly into start-ups—often acting as angel investors or "superangels"—provides distinct economic benefits compared to relying solely on institutional investors like venture capital (VC) firms. These benefits include earlier, more patient funding, hands-on mentorship, and the capacity to take on higher risks to foster innovation.
Here are the key economic benefits of the super-rich investing in startups instead of institutional investors:
Earlier Risk Capital Deployment: While institutional investors often wait for proof of concept or revenue (Seed/Series A), wealthy individuals frequently provide "pre-seed" or angel funding. This allows entrepreneurs to turn ideas into prototypes, filling a critical gap in the financing lifecycle when traditional loans are not available.
"Patient Capital" and Longer Horizons: Unlike VC funds, which typically have a 7-10 year lifespan and pressure startups for a quick exit, individual super-rich investors can afford to be more patient. This flexibility allows them to support "tough tech" or deeply innovative, long-term ventures that require decades rather than years to yield returns.
Active Mentorship and "Operator" Knowledge: Many modern super-rich investors are former entrepreneurs who offer hands-on guidance, connections, and industry expertise rather than just passive capital. This active involvement can be more valuable than money alone, helping startups avoid common pitfalls and speed up growth.
Lower Initial Valuations & Larger Stake Retention: Investing early (often before formal institutional rounds) allows individuals to secure lower valuations. This means the startup can give away less equity to raise the initial capital needed for survival, retaining more ownership for the founders for future, larger rounds.
"Goalkeepers" for Underserved Founders: Individual investors can move faster and less formally than institutional committees, making them crucial for entrepreneurs who lack connections to institutional gatekeepers, such as women and peoples of color.
Capitalizing "Flyover Country": Wealthy individuals are increasingly partnering to invest in regions outside traditional tech hubs (e.g., Silicon Valley), supporting economic development and innovation across a broader geographic area.
Focus on Radical Innovation over Incrementalism: Because they are investing their own wealth rather than limited partners' money, high-net-worth investors can afford to take "bet-the-company" risks on unproven, transformative technologies that traditional institutional investors might view as too risky.
Economic Impact Summary
Startups are responsible for most net new job creation in the economy. By acting as "agents of transfer," the super-rich move resources from mature, past ventures into promising new ones, driving technological breakthroughs and sustaining economic growth.
Sources: Cato Institute, 2021, Medium, 2024, Bunk History, 2020
Take-away: In contrast to institutional investors, the super-rich are well-positioned to take on the higher risks of young companies, provide patient funding for longer time horizons and offer hands-on guidance to foster innovation. And to quote AI:
“Innovation is a primary driver of GDP growth, acting as an engine that increases productivity, creates new markets, and enhances efficiency. By applying new ideas and technologies, economies produce more goods and services with the same inputs, leading to higher wages, business profitability, and sustained economic expansion.” Sources: IMF, 2022, Journal of Applied Economics, 2023, International Journal of Research and Innovation in Social Science, 2025
Next Question: I’m not sure yet!