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Not quite -- those investing are valuing your company at that in light of [probably] having an entire basket of companies, so they have the benefit of averages.
by TuringNYC 11y ago
Not quite -- those investing are valuing your company at that in light of [probably] having an entire basket of companies, so they have the benefit of averages. As an employee, you have one shot at this, so the risk is far higher due to lack of diversification.
- rahimnathwani 11y agoLack of diversification doesn't play into the calculation of expected value. The expected value of 100% chance of $1m is the same as the expected value of 1% chance of $100m. If you're an individual trying to make a utility-based decision, though, you have to take into account the diminishing marginal utility of each additional dollar, i.e. you care much more about the first $1m than the next $1m.