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Counterfactual Theory of Value

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Re: Counterfactual Theory of Value

#11

Post by martindbp »

pydry wrote: post #7

>Elon Musk provides another example. Today, Tesla is worth more than $1 trillion. Without his will and personality, Tesla probably wouldn’t exist. Yes it would. Mark Tarpenning and Martin Eberhard founded Tesla. They were later forced out by Elon. They were arguably quite poorly compensated for their part in starting this company. This speaks to the fundamental problem with this theory - it's all very well saying tha…

You can't prove it, but Musk is not a one-hit wonder. He's transformed the space industry by sheer force of will (as a part time founder & CEO), as Tesla has done for EVs, so it's quite reasonable to assign the success of Tesla to him.

Re: Counterfactual Theory of Value

#12

Post by pydry »

martindbp wrote: post #11
pydry wrote: post #7

>Elon Musk provides another example. Today, Tesla is worth more than $1 trillion. Without his will and personality, Tesla probably wouldn’t exist. Yes it would. Mark Tarpenning and Martin Eberhard founded Tesla. They were later forced out by Elon. They were arguably quite poorly compensated for their part in starting this company. This speaks to the fundamental problem with this theory - it's all very well saying tha…

You can't prove it, but Musk is not a one-hit wonder. He's transformed the space industry by sheer force of will (as a part time founder & CEO), as Tesla has done for EVs, so it's quite reasonable to assign the success of Tesla to him.

His perception management skills are top notch and he works as an effective conduit for getting capital to engineers.

The rest is...meh.

In SpaceX's case they picked up on rocketry research where NASA left off because its budget was squeezed.

Re: Counterfactual Theory of Value

#13

Post by nathias »

Startup valuations have nothing to do with theory of value. Theory of value, like the marxist labor theory of value are theories about the metaphysical status, origin an mechanisms of value. It is an explanation of value in general not a heuristic people would use to evaluate things. If labor theory is right (and it isn't) the answer of why founders get so much more is because they are exploiting the other guys working there.

Re: Counterfactual Theory of Value

#14

Post by michaelt »

> In startups, why do the founders receive such a disproportionate percentage of equity?

Because on day zero, 100% of the company must be owned, and the founders are the only ones there.

Equity to founders isn't handed out based on an arm's-length negotiation, or on the basis of work done.

Re: Counterfactual Theory of Value

#15

Post by runeks »

seanhunter wrote: post #3

This thinking is almost exactly how most pricing works in derivative markets and is the real breakthrough in the original Black/Scholes/Merton model[1] that has been reproduced many times since. They showed how you could replicate the payoff from a European-style option by hedging using the underlying and a risk-free instrument (under certain unrealistic assumptions, notably constant vol and the ability to trade in c…

> Since then, pricing using a replication portfolio in this way has been a cornerstone of financial maths - the price of a thing and a perfect hedge/replacement for the thing must be the same.

And the reason for this is arbitrage. If you can perfectly hedge your position in Asset A using Asset B (and vice versa), then you can make a profit by simultaneously buying the lower-priced asset while selling the higher-priced asset[1]. Thus causing the prices of the two assets to converge.

[1] Many of these assets are simply contracts, which means you don’t have to buy the asset before you can sell it: you simply create a new instance of by “writing something on a piece of paper” and sell that.

Re: Counterfactual Theory of Value

#16

Post by wruza »

ur-whale wrote: post #6

TL;DR: when you want to know the real value of something, picture a world without it.

This is inspiring, especially if you want to create something good, clearly seeing how bad that part of the world is now. It seems that it gets only worse each year, so opportunities should open up. But then the latter doesn’t feel like it should. Then you realize that your picture is missing a perception of value, a shift in which costs a fortune of scale and belief, so it takes an Elon Zuckerberg to do that. This is uninspiring.

Re: Counterfactual Theory of Value

#17

Post by istinetz »

michaelt wrote: post #14

> In startups, why do the founders receive such a disproportionate percentage of equity? Because on day zero, 100% of the company must be owned, and the founders are the only ones there. Equity to founders isn't handed out based on an arm's-length negotiation, or on the basis of work done.

But all other stock allocations are an arms length transaction; so all you've done is reframe the question to "why do the founders retain so much equity?"

Why dont seed fund demand 16% instead of 8%? Why doesn't the 6th employee demand 5% instead of 3%?

Re: Counterfactual Theory of Value

#19

Post by nabla9 »

choppaface wrote: post #8

Not really counterfactual theory, but opportunity cost. The cost of retaining the CEO to most of the shareholders (even a consensus of them) is high because they can’t realistically install a new one. Opportunity cost gets conditioned on the investor. If you’re a maker, or a player with leverage on the board or something, your opportunity cost is different.

The author is trying to reinvent the wheel. Thinking in terms of comparative advantage, autarky price, and opportunity cost makes this clearer.

opportunity cost = (returns on best forgone option) - (returns on chosen option).

Re: Counterfactual Theory of Value

#20

Post by lordnacho »

martindbp wrote: post #11
pydry wrote: post #7

>Elon Musk provides another example. Today, Tesla is worth more than $1 trillion. Without his will and personality, Tesla probably wouldn’t exist. Yes it would. Mark Tarpenning and Martin Eberhard founded Tesla. They were later forced out by Elon. They were arguably quite poorly compensated for their part in starting this company. This speaks to the fundamental problem with this theory - it's all very well saying tha…

You can't prove it, but Musk is not a one-hit wonder. He's transformed the space industry by sheer force of will (as a part time founder & CEO), as Tesla has done for EVs, so it's quite reasonable to assign the success of Tesla to him.

In this case it makes sense but in general you have to also ask about the environment. Was money cheap in that era? Was there a favourable media environment for that type of business? Was politics favourable? Etc.
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