5 ms·

I think you’re hand waving away that money is a store of value, and indirectly of time spent. The money investors have also came from them creating value by doi

by lukevp 5y ago

I think you’re hand waving away that money is a store of value, and indirectly of time spent. The money investors have also came from them creating value by doing some activity. It doesn’t materialize independently. And it is still a risk to lose that money that they earned by trading their own time in the past.

B4CKlash 5y ago
Another term for VC is risk capital. A diligent investor will only put what they can safely risk into the market. While your correct that money indirectly represents time, you’re overlooking the incremental utility of money. An investor logically values each incremental dollar less, purely evidenced by the fact they were willing to risk it. An employee on the other hand will turn those funds directly into shelter/food/health. Seems like a false equivalency to value investment assets at the same level as the money you need to survive.
- alisonkisk 5y ago
  You're saying that rich people should be paid less, a smaller multiple of what low paid workers get. You can make that debate, but it's not "equity vs wages". Someone getting paid $100M but no "equity" isn't worse off than someone getting paid $100M of valuated equity (ignoring liquidity discount blah blah)
  - B4CKlash 5y ago
    It is 100% equity vs. wages. That’s how a financial statement works. Revenue – COGs – G&A – Taxes & Interest = Net income. That net income moves to the balance sheet as retained earnings. The higher the COGs & G&A cost the lower retained earnings and the lower the retained earnings the lower proportion of equity. The premium equity achieves is largely as result of leverage – not value*. Employees might generate 100% of the revenue but get zero credit for the growth rate. In a book value sense both seem pretty even, but we don’t value growth companies at book… We value them with a DCF model (or a different model that takes into account future earnings). At T+0 you’re probably neck and neck, but as soon as you step into T+1, T+2, etc. the equity side will get credit for income it hasn’t earned yet while the wage earner is left the same (for the better or worse). *related to my parent comment and the diminishing utility of money. Equity investors can afford to be choosey because they have wealth = aka options.
alecbz 5y ago
The more relevant factor IMO is not time vs. money but the proportional risk. A year of my time is a much larger fraction of my net worth than the typical VC's investment is a fraction of their net worth.
- alisonkisk 5y ago
  This is a Marxist labor theory of value argument, disregarding market forces. For a different supply-demand function, labor could get paid far more than investors (imagine a 0 interest rate environment while inflation is happening.)
  - alecbz 5y ago
    Well, sort of. There's an argument to be made that people should realize how much better a deal VCs are getting and stop settling for worse ROI. Part of the problem is exactly that supply is high, possibly because of a lack of knowledge/negotiation leverage.
    - banannaise 5y ago
      Labor supply is high because it is forced to be high, in a way that capital supply is not. Investors can stop investing and simply live on their hoards, or even a tiny fraction of their hoards. Laborers cannot stop laboring and do the same.
      - alecbz 5y ago
        That explanation seems off? (Anyone who has enough to live off of can just do that, witholding both their capital and their labor.) But anyway I meant supply of labor for startups specifically. Like, people are too willing to forgo FAANG comp for low equity numbers at startups.
  - midasuni 5y ago
    Yet investors have made a fortune over the last year while there’s interest rates below inflation.
pydry 5y ago
>I think you’re hand waving away that money is a store of value, and indirectly of time spent. Not if it's as a result of natural capital gain, dividend on shareholdings, interest, inheritance or rent. In those cases it does materialize independently of time. Taxes are typically lower if you didn't labor for your money too. Probably because large political donations are not typically made by people who worked for their money.

by lukevp 5y ago

B4CKlash 5y ago

Another term for VC is risk capital. A diligent investor will only put what they can safely risk into the market. While your correct that money indirectly represents time, you’re overlooking the incremental utility of money. An investor logically values each incremental dollar less, purely evidenced by the fact they were willing to risk it. An employee on the other hand will turn those funds directly into shelter/food/health. Seems like a false equivalency to value investment assets at the same level as the money you need to survive.

alisonkisk 5y ago
You're saying that rich people should be paid less, a smaller multiple of what low paid workers get. You can make that debate, but it's not "equity vs wages". Someone getting paid $100M but no "equity" isn't worse off than someone getting paid $100M of valuated equity (ignoring liquidity discount blah blah)
- B4CKlash 5y ago
  It is 100% equity vs. wages. That’s how a financial statement works. Revenue – COGs – G&A – Taxes & Interest = Net income. That net income moves to the balance sheet as retained earnings. The higher the COGs & G&A cost the lower retained earnings and the lower the retained earnings the lower proportion of equity. The premium equity achieves is largely as result of leverage – not value*. Employees might generate 100% of the revenue but get zero credit for the growth rate. In a book value sense both seem pretty even, but we don’t value growth companies at book… We value them with a DCF model (or a different model that takes into account future earnings). At T+0 you’re probably neck and neck, but as soon as you step into T+1, T+2, etc. the equity side will get credit for income it hasn’t earned yet while the wage earner is left the same (for the better or worse). *related to my parent comment and the diminishing utility of money. Equity investors can afford to be choosey because they have wealth = aka options.

alecbz 5y ago

The more relevant factor IMO is not time vs. money but the proportional risk. A year of my time is a much larger fraction of my net worth than the typical VC's investment is a fraction of their net worth.

alisonkisk 5y ago
This is a Marxist labor theory of value argument, disregarding market forces. For a different supply-demand function, labor could get paid far more than investors (imagine a 0 interest rate environment while inflation is happening.)
- alecbz 5y ago
  Well, sort of. There's an argument to be made that people should realize how much better a deal VCs are getting and stop settling for worse ROI. Part of the problem is exactly that supply is high, possibly because of a lack of knowledge/negotiation leverage.
  - banannaise 5y ago
    Labor supply is high because it is forced to be high, in a way that capital supply is not. Investors can stop investing and simply live on their hoards, or even a tiny fraction of their hoards. Laborers cannot stop laboring and do the same.
    - alecbz 5y ago
      That explanation seems off? (Anyone who has enough to live off of can just do that, witholding both their capital and their labor.) But anyway I meant supply of labor for startups specifically. Like, people are too willing to forgo FAANG comp for low equity numbers at startups.
- midasuni 5y ago
  Yet investors have made a fortune over the last year while there’s interest rates below inflation.

pydry 5y ago

>I think you’re hand waving away that money is a store of value, and indirectly of time spent. Not if it's as a result of natural capital gain, dividend on shareholdings, interest, inheritance or rent. In those cases it does materialize independently of time. Taxes are typically lower if you didn't labor for your money too. Probably because large political donations are not typically made by people who worked for their money.