4 ms·

Can you please clarify why you say "equity is worth at most $0"? If the company is successful surely the equity is worth something.

raptorraver 8y ago
Equity isn’t money, it’s a lottery ticket.
- maximilianroos 8y ago
  Lottery tickets are worth more than $0
  - emilecantin 8y ago
    Yes, but not much more. E.g: I can go right now get a ticket for a $50M prize for 5$. How much do you pay for equity (in the form of reduced salary), and what's the expected upside?
    - learnstats2 8y ago
      And I would value that lottery ticket at about $1 today - with the understanding that: a) the face value is over-stated by around 100%, and b) I have no hope of riding out the variance, so the gamble is a poor one for me.
  - patrickthebold 8y ago
    Some are. Most aren't.
josephwegner 8y ago
You are absolutely correct, if the company is successful, equity might be worth quite a bit. It's unlikely that you will choose a startup that will be successful in a way that makes equity valuable. Venture Capitalists are in the business of making money off successful startups. They work day in and day out on finding startups that are likely to be successful and investing in ways to help them be successful. Most of the time, they're wrong. The only way that VCs are able to be profitable is by having a diverse portfolio of companies in the hope that one is successful enough to outweigh the losses of the others. Picking out successful startups is (probably) not your expertise, and you only get about a dozen chances (on the high end?) to choose a new employer for the duration of your career. The odds are very very against you. Given those odds, we can value startup equity at approximately $0, perhaps a bit higher. Unfortunately, most startups offer lower salaries in trade for equity. They also are offering you _options_ instead of actual shares. Unless you stick around long enough for a liquidity event that guarantees the option's value, you will have to exercise those options prior to knowing their true value. This costs you money _twice_ for an entity that has a near-$0 value.

raptorraver 8y ago

Equity isn’t money, it’s a lottery ticket.

maximilianroos 8y ago
Lottery tickets are worth more than $0
- emilecantin 8y ago
  Yes, but not much more. E.g: I can go right now get a ticket for a $50M prize for 5$. How much do you pay for equity (in the form of reduced salary), and what's the expected upside?
  - learnstats2 8y ago
    And I would value that lottery ticket at about $1 today - with the understanding that: a) the face value is over-stated by around 100%, and b) I have no hope of riding out the variance, so the gamble is a poor one for me.
- patrickthebold 8y ago
  Some are. Most aren't.

josephwegner 8y ago

You are absolutely correct, if the company is successful, equity might be worth quite a bit. It's unlikely that you will choose a startup that will be successful in a way that makes equity valuable. Venture Capitalists are in the business of making money off successful startups. They work day in and day out on finding startups that are likely to be successful and investing in ways to help them be successful. Most of the time, they're wrong. The only way that VCs are able to be profitable is by having a diverse portfolio of companies in the hope that one is successful enough to outweigh the losses of the others. Picking out successful startups is (probably) not your expertise, and you only get about a dozen chances (on the high end?) to choose a new employer for the duration of your career. The odds are very very against you. Given those odds, we can value startup equity at approximately $0, perhaps a bit higher. Unfortunately, most startups offer lower salaries in trade for equity. They also are offering you _options_ instead of actual shares. Unless you stick around long enough for a liquidity event that guarantees the option's value, you will have to exercise those options prior to knowing their true value. This costs you money _twice_ for an entity that has a near-$0 value.