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I'm surprised how many people don't get this part. Person A, investor puts in $100k Person B, employee gets paid $100k Company fails. Person A lost $100k P

I'm surprised how many people don't get this part. Person A, investor puts in $100k Person B, employee gets paid $100k Company fails. Person A lost $100k Person B gained $100k This is why person A gets the lion's share of the rewards if the company succeed. Person B risked nothing. Person A risked $100k. The typical retort from Person B is they could have gone to a different company so their risk was to work for this particular company. For example they could have gone to a FAANG company and made a high salary but instead went to some startup at a lower salary on the risk that it would succeed. From one POV that is a risk but it's not your money until it's in your hands. Future money is similar to saying well "if I won the lottery tomorrow". Until you do actually win that money it doesn't really count. You can use that line of reasoning in negotiations (you want me to join your startup but I have an offer from a FANNG company, sweeten the deal if you want me). But after that you didn't actually take a risk relevant to the company. Instead you made a choice to be paid X amount for your labor. Note: I've never been on the investing side, only the employee side, but for some reason I've never felt ripped off since I knew I was taking no risk.

techsupporter 7y ago
> Person B risked nothing. They risked the single thing that absolutely no one, anywhere on the planet, can ever give them back: time. Yes, they took a lower salary on the risk that it would pay off but they slid in the chips of their days existing on this planet alongside that risk. If no one was willing to take that risk alongside the venture capitalists who only invest easily-replenished money, the VCs would find their investments significantly restricted. The problem is that the some of the people taking a risk and making investment, often the ones in the worst position, have far less information than others. It is inherently unfair that one "investor" can be worse off than another, especially when stacking up money against time. As the author wrote, this isn't inherently unfair...as long as it's not hidden. But it's almost always hidden because the "lottery ticket hope" of turning 1% equity into seven figures is spoken of as being a regular amount of risk when, in reality, you'd be better taking that higher salary at a FMANGUNFXZOR company and putting the difference into actual lottery tickets. (As an addendum, if anyone is about to reply with the words "rational actor" anywhere in it, I'm not moved by that rebuttal. Human beings are not rational all of the time and we are nowhere near as rational as economic textbooks would have you believe. Yet, somehow, that rationality or lack thereof is only called into question whenever the person in the crappier position with less leverage is the one who loses.)
- chrismcb 7y ago
  They didn't risk their time. They got paid for it. That is the difference. If they worked for free, then you could argue they risked their time.
  - 4ntonius8lock 7y ago
    They got paid for it in the form of money and stock. If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful (the start up and its investors). As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful behavior, since deceitful behavior removes trust which creates friction. The argument that people's rewards, one who put in $50 in cash and another who and accepted a lower payment/higher risk which resulted in a decreased earnings potential of say $50 should be treated differently is anti-meritocratic. Both are risking $50. BTW, if the company offered no stock to employees, we wouldn't be having this conversation. But the comments are, or should be, based on the FA of which this is a thread.
  - superqd 7y ago
    If they didn't risk their time, then the investor didn't risk their money, since they too got paid for it. Investors put in money to get something of equal value back: time. That is why there is no difference. Both parties were compensated.
- superqd 7y ago
  I agree. The idea that time is not risked as an investment is, IMHO, deeply weak minded. Dollars, when used to purchase labor, are essentially acting as concentrated time. It's like a conversion from matter to energy and back. Walking around with lots of dollars is like holding lots of time, more time than you actually have life. So someone with a lot of money has, in effect, a vault of highly dense time they can chip off and trade with someone else, buying, essentially, more life than they could ever have (i.e., paying others to do things they could never in their lives have the time to do). We humans are such primates, though, that we regard those with far more money as essentially higher class in the social hierarchy, and venerate their actions, and their property, as inherently more valuable than someone with less. So when investing in a company with money, you are able to participate in that company by buying someone else's time. But, assuming a fair exchange (which is usually not the case for the laborer), then the one who works is trading one year of time for one year of time from the investor, in the form of dollars (assuming a 100k/year salary). However, the investor isn't trading their time in the form of calendar time, but in dollars. The worker is trading their time not in dollars, but in calendar time. The point is, it's an equal exchange. Which, if there are two people, then both would split the reward 50/50 assuming all else is equal. We get confused as primates because we are comparing dollars and time, not realizing that we need to convert to common units. To know the true fair split, we have to know how much each person invested in the same units, time or dollars, but not both. We have to convert all dollars invested to time, or all time invested to dollars, in order to know the true investment ratios. In the example of Person A and B, both put in 1 year of time, hence a 50/50 split.
rurp 7y ago
> Future money is similar to saying well "if I won the lottery tomorrow". Eh, expected value is a thing. If you lay 3:1 odds on a coin flip and then win, you get real money and are free to feel all happy about it, but you still made a poor decision. If an employee has an FAANG offer for 300k but goes with a startup for 100k+options they are absolutely taking a risk. The expected value of those options is very real and relevant.
superqd 7y ago
There is a deep flaw in this logic. Person A and Person B are both investing the same amount, just in different forms. Person A converted their 100k into 1 year of time. Person B converted their 1 year of time into 100k of money. They both put in 100k of something, B put in 100k worth of time, A put in 100k worth of money. If we assume a fair market rate for the conversion, then essentially this is a perfect exchange, and they both traded their different investments for exactly what they were worth. That is, the money invested, got back EXACTLY the amount of time it purchased, and the time invested got back EXACTLY the amount of money it purchased. Person A and B are trading things of equal value. This means they invested equally, and hence should split the reward equally.
- vsl 7y ago
  > and hence should split the reward equally Are you saying that when a company fails, all employees should return their past salaries paid by that company? Because that’s what splitting the (negative here) reward equally with investors would mean.
  - alephu5 7y ago
    Yes, give the employees back the time they've spent and they'll refund the money.
  - superqd 7y ago
    No, that doesn't mean that at all. If a company fails, investors don't have to return the time they've invested by putting in extra years of work, so it follows that those who invested time wouldn't return the money they received. Investor A puts in 100k of dollars, the company fails they've lost 100k worth of dollars. Worker B puts in 100k of time, the company fails, they've lost 100k worth of years. The point is, they are both risking equally, when compared in the same units, time or dollars, but not both. The investor is investing 100k worth of time, and the worker is also investing 100k worth of time. If the company fails, they have both lost that invested time.
    - nl 7y ago
4ntonius8lock 7y ago
I feel sorry for people who value their time at nothing.
- akamaozu 7y ago
  Even sorrier are those who value their time more than it's worth to anyone but themselves.
- superqd 7y ago
  I feel sorry for all of us who believe that money is the only thing of value that was traded in the exchange. Which essentially is your same point, I know. All those who say, "yeah, but they got paid, the investor risked their money" completely see no value in the time that was traded for the money, which, almost by definition, cannot be the case. The money invested was done so in order to be traded for something of equal value - time. But most people do not see this, and consider themselves lucky if the person with the money was "generous" enough to let them have some of the spoils of their joint effort.

techsupporter 7y ago

> Person B risked nothing. They risked the single thing that absolutely no one, anywhere on the planet, can ever give them back: time. Yes, they took a lower salary on the risk that it would pay off but they slid in the chips of their days existing on this planet alongside that risk. If no one was willing to take that risk alongside the venture capitalists who only invest easily-replenished money, the VCs would find their investments significantly restricted. The problem is that the some of the people taking a risk and making investment, often the ones in the worst position, have far less information than others. It is inherently unfair that one "investor" can be worse off than another, especially when stacking up money against time. As the author wrote, this isn't inherently unfair...as long as it's not hidden. But it's almost always hidden because the "lottery ticket hope" of turning 1% equity into seven figures is spoken of as being a regular amount of risk when, in reality, you'd be better taking that higher salary at a FMANGUNFXZOR company and putting the difference into actual lottery tickets. (As an addendum, if anyone is about to reply with the words "rational actor" anywhere in it, I'm not moved by that rebuttal. Human beings are not rational all of the time and we are nowhere near as rational as economic textbooks would have you believe. Yet, somehow, that rationality or lack thereof is only called into question whenever the person in the crappier position with less leverage is the one who loses.)

chrismcb 7y ago
They didn't risk their time. They got paid for it. That is the difference. If they worked for free, then you could argue they risked their time.
- 4ntonius8lock 7y ago
  They got paid for it in the form of money and stock. If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful (the start up and its investors). As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful behavior, since deceitful behavior removes trust which creates friction. The argument that people's rewards, one who put in $50 in cash and another who and accepted a lower payment/higher risk which resulted in a decreased earnings potential of say $50 should be treated differently is anti-meritocratic. Both are risking $50. BTW, if the company offered no stock to employees, we wouldn't be having this conversation. But the comments are, or should be, based on the FA of which this is a thread.
- superqd 7y ago
  If they didn't risk their time, then the investor didn't risk their money, since they too got paid for it. Investors put in money to get something of equal value back: time. That is why there is no difference. Both parties were compensated.
superqd 7y ago
I agree. The idea that time is not risked as an investment is, IMHO, deeply weak minded. Dollars, when used to purchase labor, are essentially acting as concentrated time. It's like a conversion from matter to energy and back. Walking around with lots of dollars is like holding lots of time, more time than you actually have life. So someone with a lot of money has, in effect, a vault of highly dense time they can chip off and trade with someone else, buying, essentially, more life than they could ever have (i.e., paying others to do things they could never in their lives have the time to do). We humans are such primates, though, that we regard those with far more money as essentially higher class in the social hierarchy, and venerate their actions, and their property, as inherently more valuable than someone with less. So when investing in a company with money, you are able to participate in that company by buying someone else's time. But, assuming a fair exchange (which is usually not the case for the laborer), then the one who works is trading one year of time for one year of time from the investor, in the form of dollars (assuming a 100k/year salary). However, the investor isn't trading their time in the form of calendar time, but in dollars. The worker is trading their time not in dollars, but in calendar time. The point is, it's an equal exchange. Which, if there are two people, then both would split the reward 50/50 assuming all else is equal. We get confused as primates because we are comparing dollars and time, not realizing that we need to convert to common units. To know the true fair split, we have to know how much each person invested in the same units, time or dollars, but not both. We have to convert all dollars invested to time, or all time invested to dollars, in order to know the true investment ratios. In the example of Person A and B, both put in 1 year of time, hence a 50/50 split.

rurp 7y ago

> Future money is similar to saying well "if I won the lottery tomorrow". Eh, expected value is a thing. If you lay 3:1 odds on a coin flip and then win, you get real money and are free to feel all happy about it, but you still made a poor decision. If an employee has an FAANG offer for 300k but goes with a startup for 100k+options they are absolutely taking a risk. The expected value of those options is very real and relevant.

superqd 7y ago

There is a deep flaw in this logic. Person A and Person B are both investing the same amount, just in different forms. Person A converted their 100k into 1 year of time. Person B converted their 1 year of time into 100k of money. They both put in 100k of something, B put in 100k worth of time, A put in 100k worth of money. If we assume a fair market rate for the conversion, then essentially this is a perfect exchange, and they both traded their different investments for exactly what they were worth. That is, the money invested, got back EXACTLY the amount of time it purchased, and the time invested got back EXACTLY the amount of money it purchased. Person A and B are trading things of equal value. This means they invested equally, and hence should split the reward equally.

vsl 7y ago
> and hence should split the reward equally Are you saying that when a company fails, all employees should return their past salaries paid by that company? Because that’s what splitting the (negative here) reward equally with investors would mean.
- alephu5 7y ago
  Yes, give the employees back the time they've spent and they'll refund the money.
- superqd 7y ago
  No, that doesn't mean that at all. If a company fails, investors don't have to return the time they've invested by putting in extra years of work, so it follows that those who invested time wouldn't return the money they received. Investor A puts in 100k of dollars, the company fails they've lost 100k worth of dollars. Worker B puts in 100k of time, the company fails, they've lost 100k worth of years. The point is, they are both risking equally, when compared in the same units, time or dollars, but not both. The investor is investing 100k worth of time, and the worker is also investing 100k worth of time. If the company fails, they have both lost that invested time.
  - nl 7y ago

4ntonius8lock 7y ago

I feel sorry for people who value their time at nothing.

akamaozu 7y ago
Even sorrier are those who value their time more than it's worth to anyone but themselves.
superqd 7y ago
I feel sorry for all of us who believe that money is the only thing of value that was traded in the exchange. Which essentially is your same point, I know. All those who say, "yeah, but they got paid, the investor risked their money" completely see no value in the time that was traded for the money, which, almost by definition, cannot be the case. The money invested was done so in order to be traded for something of equal value - time. But most people do not see this, and consider themselves lucky if the person with the money was "generous" enough to let them have some of the spoils of their joint effort.