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You could also argue in the other direction: the substantial risk that stock in a startup may pay nothing at all should require paying a premium in stock option
by akkartik 15y ago
You could also argue in the other direction: the substantial risk that stock in a startup may pay nothing at all should require paying a premium in stock options to make the expected value line up.
- swombat 15y agoYou can certainly argue it many ways. The key point is, this approach provides a starting point to agree from.
- wtvanhest 15y agoThe point the author is trying to make is to price that risk according to how Angel investors and VCs price that risk. One reason you may want to take a discount is that you are in partial control of its success. I also think that if you are going to join a start up you should believe that the VCs and Angels priced it incorrectly and that the chance of success is far greater.
- akkartik 15y agoBut investors get to spread their risk around. You are forced to keep all your eggs in one basket. The marginal utility of their cash investment is likely lower than that of your time investment. You have some control of its success, yes, but does it really compensate for the previous paragraph?