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0 pointsinhumantsar7mo ago0 comments

doesn't all of this assume that the startup reaches a liquidity event which favors the employee though? or at least that the startup is hot enough that there's a secondary market for those shares?

unless I'm misunderstanding the argument, I dont see how those hypothetical returns could be considered "expected returns". startups which reach a place where employees can profitably cash out seem far too rare to reasonably expect a return at all, never mind a large one.

Since a person works for one company at a time (usually), and it can take 3-5 years or more for a startup to reach a place where the equity is worth something, this argument reads to me like "the returns on a Powerball win are so much higher than your projected lifetime earnings that playing the lottery is a smart financial move".

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usaar3337mo ago

It's a probabilistic model. It assumes (correctly) that the low probability of a home run times the home run's valuation is quite large ("expected returns" in the probabilistic sense).

> this argument reads to me like "the returns on a Powerball win are so much higher than your projected lifetime earnings that playing the lottery is a smart financial move".

That's stronger claim than it is making, but yes in a sense it is saying the lottery can be a good move because the expectation is large - that's what VCs do after all.

Note that all the model aims to do is value the equity package. If a public company is offering more than what this model values the startup equity package as (and this often is the case!), it isn't worth it financially to work at that startup.

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