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0 pointsB4CKlash4y ago0 comments

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.

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alisonkisk4y 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)

B4CKlashOP4y 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.

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