The 3 Assets that Build Wealth

The Role of Intellectual Property in Wealth Creation

For entrepreneurial LPs, IP is more than just a protective legal tool, it’s a scalable, high-margin engine for value creation.

The chart above highlights a compelling indicator of this trend: a significant portion of businesses across various sizes have pursued patent applications. Notably, even among companies with as few as 5–9 employees, nearly half have already filed at least one patent. This suggests that smart founders and operators understand the strategic importance of owning their innovations early—an insight LPs should not ignore when evaluating portfolio companies or co-investment opportunities.

This is especially relevant when we consider that IP-based assets can generate long-term recurring income, compound in value over time, and provide a defensible moat in competitive industries. The data also suggests that the pursuit of patent protection isn’t limited to massive enterprises with dedicated legal teams.

In fact, firms with between 10–19 and 50–99 employees show application rates around 50%, with the highest application activity—67%—seen among companies with 250–499 employees. This trend reinforces the idea that as businesses mature and stabilize cash flow, formalizing and protecting their intellectual capital becomes a top priority. From a wealth-building standpoint, it underscores the strategic role of IP in driving both enterprise value and investor returns.

Key takeaways from chart:

• Small teams are unusually patient‑intense. Among R&D‑performing firms, those with 5–9 employees produce 50%+ more patents per employee than large firms.

• Micro firms (1–4 employees) apply at roughly 270 patents per 1,000 employees—extraordinary intensity that signals early defensibility.

Early IP is leverage: it supports pricing power, licensing revenue, and valuation multiples.

Private Real Estate, A Core Pillar of the Wealth Stack

Private core real estate (NCREIF NFI‑ODCE) has delivered higher risk‑adjusted returns than listed REITs over 2000–2020 (Sharpe ~0.78 vs ~0.43), with materially lower volatility. That steadier profile is why it serves as a balance‑sheet stabilizer in diversified stacks.

Capital Sources and the Bootstrap-to-Scale Trajectory

In the journey of building wealth through cash-flowing businesses—one of the three pillars of the Wealth Stack—access to capital plays a critical role. The pathway from bootstrapping to scalable operations often mirrors the growth trajectory of funding sources available to entrepreneurs.

This chart illustrates how businesses of varying sizes fund their operations, from solo founders to growing firms with hundreds of employees. The data reveals that personal savings (75%) and credit cards (62%) are the most relied-upon sources for the smallest businesses (0–4 employees), underscoring how much early-stage entrepreneurship depends on self-financing and personal risk.

As firms grow, however, a clear shift emerges: institutional capital—such as local and national banks, SBA programs, and grants—becomes more accessible and frequently used. For example:

• 5–19 employee firms begin to diversify funding, with 65% using local banks/credit unions, and 52% accessing national banks. While personal savings are still used by 65%, reliance on credit cards (71%) begins to moderate.
  

• 20–500 employee firms lean heavily into institutional funding—69% use local banks, 68% use national banks, and nearly half (49%) access grants or loans. The SBA also becomes a meaningful contributor (41%), alongside online lenders (36%).
  

This evolution reflects a broader principle of the Wealth Stack: sustainable business growth attracts more stable, diversified capital, reinforcing the long-term value of the enterprise. For entrepreneurial LPs, it also signals a maturation point—where businesses evolve from risky personal capital structures to investment-ready opportunities.

Federal Reserve data corroborates this trend: smaller, younger businesses lean heavily on the owner’s personal savings, friends, or family (66% in 2022, up from 56% in 2019). While traditional financial institutions saw a decline (from 62% to 51%), government funding sources rose dramatically from 4% to 55%, largely in response to emergency programs during the pandemic—further illustrating how macroeconomic factors influence capital pathways.

Additionally, the percentage of firms that did not obtain outside funding fell sharply from 15% to 8%, reinforcing the increased participation in formal capital markets.

Strategic Insights for LPs

This data offers valuable implications for the Wealth Stack strategy:

• The Bootstrap Phase: Early-stage businesses face real capital constraints. With 75% relying on personal savings and 62% using credit cards, they’re exposed to personal financial risks and limited leverage. This is the point where many businesses stall out or stagnate.
  

• The Scale Phase: Businesses that push through and access institutional capital—banks, SBA, grants—begin to stabilize cash flow, improve terms, and set the stage for scalable infrastructure. These businesses are better equipped to withstand market fluctuations and create long-term enterprise value.
  

• Investment Timing: LPs who identify and support businesses at the inflection point—where personal funding gives way to institutional access—can capture asymmetric upside. These companies are not only de-risking but compounding value through capital efficiency and reinvestment.
  

In essence, the evolution of funding sources is not just a financial data point—it’s a roadmap. It signals a company’s readiness to scale, its resilience under pressure, and its alignment with the Wealth Stack’s goal of durable, wealth-generating business ownership.

Windfalls, Wealth, and the Risk of Financial Collapse

Windfalls vanish without structure. Peer‑reviewed research finds ~15.7% of NFL players file for bankruptcy within 12 years of retirement (NBER), and ~6.1% of NBA players file within 15 years (GFLEC). Income spikes require an allocation system—this is where the Wealth Stack converts cash into durable, appreciating, and income‑generating assets.

This is precisely where the Wealth Stack model becomes essential. Whether the windfall comes from a liquidity event, inheritance, or a successful business exit, the three components of the Wealth Stack—real estate, cash-flowing businesses, and intellectual property—offer a disciplined structure for converting short-term capital into durable, appreciating, and income-generating assets.

 Without these, even the highest earners remain exposed to the volatility of markets, lifestyle inflation, and poor investment decisions. The data here should serve as a warning: income alone does not equal wealth. What matters is how that income is structured, deployed, and protected. The Wealth Stack provides the blueprint for doing just that.

Key takeaways from chart:

• High income ≠ wealth preservation: Despite multimillion-dollar contracts, a staggering 78% of NFL players face serious financial distress post-retirement—a clear signal that cash alone does not build lasting wealth.

• Bankruptcy is only part of the story: While 16% of NFL players file for bankruptcy, an even larger group suffers quietly through debt, poor liquidity, and asset depletion, showing how unstructured wealth erodes invisibly over time.

• NBA players mirror the trend: With 60% of former NBA players also experiencing hardship, it’s evident that this issue transcends individual leagues or personalities—pointing instead to a missing wealth framework.

• Windfalls need structure, not spontaneity: Athletes often receive large sums early in life, but lack the guidance to deploy them into appreciating or income-producing assets. Entrepreneurs exiting a company, inheriting wealth, or receiving performance bonuses face a similar dilemma.

• Wealth Stack as antidote to financial decay:

  • Real estate offers stability and inflation resistance.

  • Cash-flowing businesses create sustainable income even after primary career ends.

  • Intellectual property generates royalties and licensing opportunities that scale passively.

Key LP insight: Just as early-stage capital needs to be guided into productive business use, personal windfalls need strategic allocation. LPs can apply the Wealth Stack for themselves—and advocate for it among founders, athletes, and creators who may soon find themselves with substantial, but fleeting, liquidity.

Sources & References

American Bankruptcy Institute. (n/d). How Athletes go Bankrupt at an Alarming rate. https://www.abi.org/feed-item/how-athletes-go-bankrupt-at-an-alarming-rate 

Federal Reserve Bank. (2023). 2023 REPORT ON EMPLOYER FIRMS: FINDINGS FROM THE 2022 SMALL BUSINESS CREDIT SURVEY. https://www.fedsmallbusiness.org/reports/survey/2023/2023-report-on-employer-firms 

Franklin Templeton. (2024). Why private real estate? https://www.franklintempleton.co.uk/our-funds/capabilities/alternatives/categories/real-estate 

Global Financial Literacy Excellence Center. (n/d). Financial Literacy for Professional Athletes. https://gflec.org/initiatives/bankruptcy-rates-among-nfl-players-short-lived-income-spikes/ 

National Bureau of Economic Research. (2015). Bankruptcy Rates among NFL Players with Short-Lived Income Spikes. https://www.nber.org/papers/w21085 

TIAA. (2021). Private real estate. https://www.tiaa.org/public/pdf/p/private-real-estate-whitepaper.pdf 

US Chamber of Commerce. (2023). Small Business Data Center. https://www.uschamber.com/small-business/small-business-data-center