4 ms·

Assuming you're telling the truth, these are called "outliers". You know a dozen people who won a lottery ticket. So what. The math still holds: a lottery ti

Assuming you're telling the truth, these are called "outliers". You know a dozen people who won a lottery ticket. So what. The math still holds: a lottery ticket is a negative investment and startup equity is worthless.

austenallred 9y ago
Not the majority, but not an outlier either. If it were actually a lottery ticket it would be impossible for me to know multiple people that are rich as a result. I don’t think it’s as rare as you seem to think - a Facebook creates thousands of millionaires and a handful of billionaires. A lot of companies you’ve never heard of made all their employees rich. The odds aren’t good but it’s by no means a lottery, either. Startup equity is likely worth nothing, but there’s a small chance it’s worth an extraordinary amount. That’s not “worthless.”
- pja 9y ago
  By definition, your friends are likely to be concentrated in specific sub-groups (that’s how friend networks work). So if you know one Facebook millionaire, the likelihood is that you know a bunch of them. By contrast, I don’t know any Facebook millionaires. Nor do lots & lots of other people, even within the Tech industry. You can't generalise from your personal experience to the "average" experience - 'Facebook millionaires' are not randomly distributed, but clustered together: social graphs are not randomised.
  - eldavido 9y ago
    I think this is true, but I draw a different conclusion: talking about industry-wide "Averages" is a complete waste of time. It's sort of like talking about "the housing market" vs. the Houston market, Chicago market, SF market, etc. There is no "average experience" just like there's no "average housing market". That level of aggregation is just meaningless. It's much better to consider one's circumstances and think about people in your situation, their odds, vs. some meaningless aggregate.
- alien_at_work 9y ago
  >Not the majority, but not an outlier either. No, literally an outlier by definition. How many people do imagine are joining startups world wide? In your case it sounds like it's even worse than I had imagined: do you really just know a dozen early Facebook employees? I had assumed that you lived near a startup hub and knew a dozen people who happened to have made it. >it would be impossible for me to know multiple people that are rich as a result. Not if you e.g. go to a "lottery winners" cruise. But seriously, the company is the lottery ticket. If the company wins then, sure, plenty of other people in that company will win and it's possible for you to hang out with lots of them. But what you're forgetting about is companies that were of similiar size that don't exist anymore. There have still been so few billion dollar startups that most people on this site can probably name them all. >The odds aren’t good but it’s by no means a lottery, either. Of course it is. How many startups are there, right now, world wide? How many startups make early employees rich per year? Now compare the odds of finding such a startup with just buying a lottery ticket and I suspect you'll find the lottery ticket a bargain. >Startup equity is likely worth nothing, but there’s a small chance it’s worth an extraordinary amount. That’s not “worthless.” But this is the falacy of the lottery ticket itself: I could just spend $20 and it might pay out $100 million. But if you apply the Kelly criterion you'll find that it's a bad EV play, every time. And, as I mentioned, the lottery ticket is quite a deal compared to a startup: I'm just out $20 or so. With a startup I'm thowing away potentially years of better earnings for something with a ridiculously low probability of actually happening. And keep in mind that your future salary is generally related to your current one so discounting your value by 40-60% is something you'll very likely never entirely recover from. And this is ignoring any career growth opportunities that were also lost. So "worthless" is the wrong term for startup equity. Strongly EV negative is much more accurate.
- qaq 9y ago
  Count the number of Unicorns now take the number of deals top 5 VC outfits had to do to filter out those Unicorns now do the math. You will get fairly abysmal number.
  - austenallred 9y ago
    a. By the time you’re a billion dollar company almost everyone will have a check from the big VC funds b. You don’t have to be a billion dollar company for it to be a great exit
    - qaq 9y ago
      To be a great exit for whom? For founders maybe for employee nope. You gave some hypothetical employee 1% and 5 years later company sold for 200 mil. by that time that 1% got diluted most likely 4x so she/he get's 250K considering the salary and perks haircut that employee took to join startup over 5 years he/she is basically f#$%ed, but that is still a very optimistic scenario.
icedchai 9y ago
It's not worthless. It's worth less than founders think it is... like $10K of options isn't worth giving up $10K of salary. Is it worth $2K? Maybe. It depends...
- qaq 9y ago
  It's literally close to worthless. If the startup is not being funded by top 5 VC outfits your chances of payout already drop to pretty much 0 and even if it is all things considered it still will not compensate for the salary haircut you took even in most best case scenarios. So there is no rational way to make an argument that working for startup makes $ sense. There are obviously other reasons why you might want to work for a startup but rational $ analysis is def not one of them.
  - icedchai 9y ago
    Yes, I will admit it is incredibly unlikely that they will pay off. In my 20 year career, I have only had a positive outcome on options once, and then it was not worth the pay cut I took. Maybe I had bad luck, or chose poorly...
    - qaq 9y ago
      A top tier VC firm that is good at making picks has something like 1 in 100 chance investing in Unicorn, so pretending that we as eng. can make a good pick in a few tries ...
  - CryoLogic 9y ago
    It sounds like your idea of a payout is an acquisition. There are many companies especially outside of tech which are profitable and do not require a buyout.
    - qaq 9y ago
      The whole conversation is about VC funded startups and implication of equity comp. for startup employees.

austenallred 9y ago

Not the majority, but not an outlier either. If it were actually a lottery ticket it would be impossible for me to know multiple people that are rich as a result. I don’t think it’s as rare as you seem to think - a Facebook creates thousands of millionaires and a handful of billionaires. A lot of companies you’ve never heard of made all their employees rich. The odds aren’t good but it’s by no means a lottery, either. Startup equity is likely worth nothing, but there’s a small chance it’s worth an extraordinary amount. That’s not “worthless.”

pja 9y ago
By definition, your friends are likely to be concentrated in specific sub-groups (that’s how friend networks work). So if you know one Facebook millionaire, the likelihood is that you know a bunch of them. By contrast, I don’t know any Facebook millionaires. Nor do lots & lots of other people, even within the Tech industry. You can't generalise from your personal experience to the "average" experience - 'Facebook millionaires' are not randomly distributed, but clustered together: social graphs are not randomised.
- eldavido 9y ago
  I think this is true, but I draw a different conclusion: talking about industry-wide "Averages" is a complete waste of time. It's sort of like talking about "the housing market" vs. the Houston market, Chicago market, SF market, etc. There is no "average experience" just like there's no "average housing market". That level of aggregation is just meaningless. It's much better to consider one's circumstances and think about people in your situation, their odds, vs. some meaningless aggregate.
alien_at_work 9y ago
>Not the majority, but not an outlier either. No, literally an outlier by definition. How many people do imagine are joining startups world wide? In your case it sounds like it's even worse than I had imagined: do you really just know a dozen early Facebook employees? I had assumed that you lived near a startup hub and knew a dozen people who happened to have made it. >it would be impossible for me to know multiple people that are rich as a result. Not if you e.g. go to a "lottery winners" cruise. But seriously, the company is the lottery ticket. If the company wins then, sure, plenty of other people in that company will win and it's possible for you to hang out with lots of them. But what you're forgetting about is companies that were of similiar size that don't exist anymore. There have still been so few billion dollar startups that most people on this site can probably name them all. >The odds aren’t good but it’s by no means a lottery, either. Of course it is. How many startups are there, right now, world wide? How many startups make early employees rich per year? Now compare the odds of finding such a startup with just buying a lottery ticket and I suspect you'll find the lottery ticket a bargain. >Startup equity is likely worth nothing, but there’s a small chance it’s worth an extraordinary amount. That’s not “worthless.” But this is the falacy of the lottery ticket itself: I could just spend $20 and it might pay out $100 million. But if you apply the Kelly criterion you'll find that it's a bad EV play, every time. And, as I mentioned, the lottery ticket is quite a deal compared to a startup: I'm just out $20 or so. With a startup I'm thowing away potentially years of better earnings for something with a ridiculously low probability of actually happening. And keep in mind that your future salary is generally related to your current one so discounting your value by 40-60% is something you'll very likely never entirely recover from. And this is ignoring any career growth opportunities that were also lost. So "worthless" is the wrong term for startup equity. Strongly EV negative is much more accurate.
qaq 9y ago
Count the number of Unicorns now take the number of deals top 5 VC outfits had to do to filter out those Unicorns now do the math. You will get fairly abysmal number.
- austenallred 9y ago
  a. By the time you’re a billion dollar company almost everyone will have a check from the big VC funds b. You don’t have to be a billion dollar company for it to be a great exit
  - qaq 9y ago
    To be a great exit for whom? For founders maybe for employee nope. You gave some hypothetical employee 1% and 5 years later company sold for 200 mil. by that time that 1% got diluted most likely 4x so she/he get's 250K considering the salary and perks haircut that employee took to join startup over 5 years he/she is basically f#$%ed, but that is still a very optimistic scenario.

icedchai 9y ago

It's not worthless. It's worth less than founders think it is... like $10K of options isn't worth giving up $10K of salary. Is it worth $2K? Maybe. It depends...

qaq 9y ago
It's literally close to worthless. If the startup is not being funded by top 5 VC outfits your chances of payout already drop to pretty much 0 and even if it is all things considered it still will not compensate for the salary haircut you took even in most best case scenarios. So there is no rational way to make an argument that working for startup makes $ sense. There are obviously other reasons why you might want to work for a startup but rational $ analysis is def not one of them.
- icedchai 9y ago
  Yes, I will admit it is incredibly unlikely that they will pay off. In my 20 year career, I have only had a positive outcome on options once, and then it was not worth the pay cut I took. Maybe I had bad luck, or chose poorly...
  - qaq 9y ago
    A top tier VC firm that is good at making picks has something like 1 in 100 chance investing in Unicorn, so pretending that we as eng. can make a good pick in a few tries ...
- CryoLogic 9y ago
  It sounds like your idea of a payout is an acquisition. There are many companies especially outside of tech which are profitable and do not require a buyout.
  - qaq 9y ago
    The whole conversation is about VC funded startups and implication of equity comp. for startup employees.