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A good friend of mine (actually back then, my boss) decided to roll the dice in that situation instead of just cashing in 15mill. He lost that game, and he only
by auggierose 14y ago
A good friend of mine (actually back then, my boss) decided to roll the dice in that situation instead of just cashing in 15mill. He lost that game, and he only told me a long time later that he was offered that choice.
I think this is one reason why VCs want young entrepeneurs, because VCs need people who think that they get many more opportunities to cross that line in case the current startup tanks. Because VCs will ALWAYS pick box B if the expected value of B is larger than that of A, even if A is a 100% thing.
- Alan01252 14y agoMy Dad did exactly the same thing. He ran a steel company with profits of around £600,000 was offered ~£2 mill for the company and turned it down. The recession of the 1990's came and completely wiped out the steel/construction industry and his company went under. In the highly unlikely event I'm ever given that opportunity I'll definitely pick Box A, I've seen first hand just how hard it can be when Box B doesn't work out.
- agsamek 14y ago2M for 600k profit was just a very poor offer and your father chose right regardless of what happened next. (Judged by the limited information provided)
- kansface 14y agoConsidering the company went bankrupt shortly thereafter, the offer actually reflected the actual value of the company. Its hard to know that at the time.
- StavrosK 14y agoThen it didn't reflect the actual value of the company. It was a low offer, and the unpredictable events are just that: unpredictable. The winning lottery ticket still costs $1, because you don't know if it's going to win.
- mesozoic 14y agoExit multiples for steel mills aren't quite the same as for tech companies.
- yarou 14y agoIt's actually an interesting toy problem. Brings me back to microeconomics. Most people tend to be risk-averse, so they will never accept a 50/50 gamble (ref: http://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern_utility_theorem http://en.wikipedia.org/wiki/Von_Neumann%E2%80%93Morgenstern...). However, those in the startup space tend to be risk seeking, thus they are more inclined for the second option. Behaviorialists will point out this is a classic example of framing effect (http://en.wikipedia.org/wiki/Framing_effect_(psychology) http://en.wikipedia.org/wiki/Framing_effect_(psychology)). While the distinction between 10 or 20 dollars is trivial, the distinction between 5,000,000 and a gamble of 20,000,000 is more substantial.
- 1337biz 14y agoThis is an excellent point and could also highlight why Europe is relatively slagging behind when it comes to high value startups. Europeans are often much older than in the US when founding a company (mid 30s). This could explain an increased risk-aversity. A while back I was attending a talk by Thiel, and his point was that Europeans should stop exiting $10m companies when they could have build those up to a $1b valuation. He framed this quite interestingly, somewhat as a duty to society, as only with this kind of capital it is possible to built a futile start-up environment for following entrepreneurs.
- walshemj 14y agoI recall a mate about 15 years ago who worked at Texas Instruments - once shared a plane ride with a director (they had a policy of upgrading people if they where on the same flight) Apparently after the 3rd stiff G&T the older guy mused "gee I wish i had gone in with those guys" and he was referring to the traitorous 8 who left Shockley labs :-)