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The Equity Equation

paulgraham.com

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Re: The Equity Equation

#151

Post by ph0rque »

bootstrapper wrote: post #150
pg wrote: post #149

Earlier quoted context omitted.

What you misunderstood was that this article was simply about the math of trading equity, not higher level issues like one's personal goals, which I talk about elsewhere. Incidentally, your specific claim that if you take VC money "you're not getting anything until the company is worth at least 10X" is false. Many VCs, including Sequoia, will let founders sell some of their stock on the way up for diversification. Su…

Trading equity only makes sense in terms of my goals. The founders own 90% of this company. We're not trading equity unless the math makes sense. If your math says it makes sense when it doesn't, your math is wrong (specifically, money has nonlinear utility for founders, but linear utility for VCs, or more specifically, for limited VC partners). "Many VCs, including Sequoia, will let founders sell some of their stock…

hey bootstrapper, what is your company?

Re: The Equity Equation

#152

Post by jemroc »

I guess I'm the only dumb one here. Can someone explain to me how he came up with the 1.5 as a multiplier for the new hire's salary? Also the part where he talks about making a 50% "profit" on the new hire and then proceeds to subtract a third from 16.7%. Why 50% and why 1/3? How did he come up with those numbers? Please enlighten me.

Re: The Equity Equation

#153

Post by Xichekolas »

mynameishere wrote: post #49
cperciva wrote: post #17

Earlier quoted context omitted.

Of course it's a bold statement. But if I wasn't bold, I wouldn't have started university at age 13, set three world records for calculating pi (a stunt, I admit), ranked in the top six mathematics undergraduates in North America, received a $100k+ scholarship to Oxford University (not the Rhodes, unfortunately -- their mistake), received a doctorate in computer science from said university, and become the security o…

A few tips: 1. Open up Microsoft word. 2. Type all that out. 3. Save it as "Resume.doc" 4. Don't open it again until your next job search.

Psssh... He wrote an OpenOffice clone in a programming language he himself designed with syntax like vector calculus.

Seriously, Word?!

Re: The Equity Equation

#155

Post by aneesh »

cperciva wrote: post #36
dbosson wrote: post #34

Earlier quoted context omitted.

Remember that success comes from improving OTHER people's lives. All your achievements, while probably very gratifying to your mother, have not improved my life at all.

Do you use OS X or Mozilla? Have you ever used their software update mechanisms? If yes, I've improved your life -- they use my delta compression work (bsdiff, originally written as part of FreeBSD Update) to reduce the size of updates which have to be downloaded. As of about a year ago, my work had saved users around the world well over a hundred years of waiting for updates to download.

If we assume 100 million internet users that you saved 100 years, that's roughly 30 seconds per user. Let's say just 10% of people use OS X or Mozilla - that's 5 minutes per user.

This is not to belittle, just to put your "100 years" in context. It's great work and you've saved me personally a lot more than 5 minutes.

Re: The Equity Equation

#156

Post by helveticaman »

dbosson wrote: post #38
cperciva wrote: post #36

Earlier quoted context omitted.

Do you use OS X or Mozilla? Have you ever used their software update mechanisms? If yes, I've improved your life -- they use my delta compression work (bsdiff, originally written as part of FreeBSD Update) to reduce the size of updates which have to be downloaded. As of about a year ago, my work had saved users around the world well over a hundred years of waiting for updates to download.

"Remember also that every time you open your mouth in the presence of a person who has an abundance of knowledge, you display to that person your exact stock of knowledge or your lack of it! Genuine wisdom is usually conspicuous through modesty and silence."

That's a two-way street, dbosson.

Re: The Equity Equation

#157

Post by helveticaman »

dbosson wrote: post #38
cperciva wrote: post #36

Earlier quoted context omitted.

Do you use OS X or Mozilla? Have you ever used their software update mechanisms? If yes, I've improved your life -- they use my delta compression work (bsdiff, originally written as part of FreeBSD Update) to reduce the size of updates which have to be downloaded. As of about a year ago, my work had saved users around the world well over a hundred years of waiting for updates to download.

"Remember also that every time you open your mouth in the presence of a person who has an abundance of knowledge, you display to that person your exact stock of knowledge or your lack of it! Genuine wisdom is usually conspicuous through modesty and silence."

That's a two-way street, dbosson. I wouldn't hasten to silence him, nor chasten him for opening his mouth "in the presence of a person who has an abundance of knowledge," as you put it.

Re: The Equity Equation

#158

Post by EBB »

Very good article thanks -- why am I not surprised? :-) Few minor points. Sometimes, not often, your initial valuation may affect the subsequent rounds (they shouldn't but may). Crowded cap tables are also problematic. Initial employees contributions, however small, will entitle them to more shares that the later ones -- which may cause discontent. Finally think about how many 6.7% you can give up?

I am not even going to get into option analysis; talk about introducing non-linearities. But even in a linear stream Paul's footnote that YC combinator brings to table a lot more than 6.7% (?) is probably correct, but it should also take into account the effects of the multiplier of the later rounds and options on both side.

Re: The Equity Equation

#159

Post by EBB »

I read only some of these comments and I have to say: EASY !!!

This is static analysis of a single decision; and it has to be viewed with those limitations in mind.

Option analysis and risk, nor is dilution after each round is talked about here. Yes if the Google founders had given shares left an right they would be in serious trouble making isolated decisions. Nonetheless, it is hard if not impossible to bring mathematical rationality to something fairly dynamic, if not irrational.

Re: The Equity Equation

#160

Post by hualibaobao »

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