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The Equity Equation

paulgraham.com

41–50 of 160 posts

Re: The Equity Equation

#41

Earlier quoted context omitted.

Well, I hope your startup idea isn't this: http://www.daemonology.net/blog/2006-09-13-encrypted-backup.... This post also shows a phenomenal misunderstanding of what it takes to create a successful software startup: http://www.daemonology.net/blog/2007-06-21-think-before-codi...

That is my startup idea. I don't want to take this thread even more off-topic (if that's even possible), but please feel free to contact me at the address in that first post to explain why you think it is a bad idea.

This would be off-topic in this thread, but definitely not in this forum. If you make a new top level post requesting feedback, more people will be able to contribute and benefit from it.

Re: The Equity Equation

#42
post #26

Earlier quoted context omitted.

One personal tip, you come off as an arrogant prick because of your "I am holier than thou" statements. These kind of behaviors will drastically reduce the amount of people that will want to work with you or help you. I work with MDs and PhDs on a daily basis, analyzing their technologies for their start up companies. By far, I am much more willing to put in extra hours for friendly people than those that cram down m…

Again you're right, and I'm sorry about the attitude. Over the past year I've started to get rather defensive when people have suggested that I'm wasting my time on this project...

I get a whole lot of that (even from my family: my sister told me "So, mom and I were talking in the car, and it's great that you're doing this startup, but honestly I don't think you'll succeed.") When I gave notice today, I had to listen to my boss go on about how I was too young to start a startup (I'm 26), how he spent about 15 years after getting his Ph.D learning about business and working in the industry, how my technical skills were too weak (nevermind that I wrote two of his products, and he's never seen me program in a language other than Java), and how if my idea was any good at all, I'd have been able to secure funding for it (nevermind that we're not interested in outside funding until we have some traction).

I've found that the best response is to sit there, listen carefully, take note of any valid points, and ask followup questions if you need more information on one. You may learn something: despite the overall negativity of the conversation, my boss had many points that I'm going to want to keep in mind as we move forwards.

Understand, there is a lot of self-justification going around when it comes to entrepreneurship. As long as rich people are the distant Bill Gateses and Warren Buffets, people can put them up on a pedestal or say "Oh, they got lucky." But if someone you've grown up with or someone who used to work for you gets rich, you have to ask yourself "Why them and not me? Are they just smarter than me?"

Many smart people will do just about anything to avoid admitting that others are smarter than them, so they instinctively say "Oh, he's just going to fail." And when you succeed, they'll say "Oh, he just got lucky." If you succeed again they'll start saying "The game is rigged!".

But if you stoop to their level and say "Oh, look how smart I am, of course I'm going to succeed," you're just engaging in self-justification yourself. And that's a dangerous mental attitude to get into, because it blinds you to details. The reason you're smart in the first place is because you pick up details that other people don't; you can easily become stupid by believing yourself smart. This comes from experience: I did precisely this in high school and college, and then found that when I actually tried to get something done, the results were much more disappointing than I would've liked.

(Therapy for myself: I think you're smarter than me, I think you will succeed, and I think that if you do succeed, it will be because of skill. But keep what I say in mind anyway. It may be useful.)

Re: The Equity Equation

#43
post #26

Earlier quoted context omitted.

One personal tip, you come off as an arrogant prick because of your "I am holier than thou" statements. These kind of behaviors will drastically reduce the amount of people that will want to work with you or help you. I work with MDs and PhDs on a daily basis, analyzing their technologies for their start up companies. By far, I am much more willing to put in extra hours for friendly people than those that cram down m…

Again you're right, and I'm sorry about the attitude. Over the past year I've started to get rather defensive when people have suggested that I'm wasting my time on this project...

Were these people questioning your ability to pull off the technical challenges? If they were questioning the business potential of the idea, your impressive credentials in math and programming are besides the point.

Re: The Equity Equation

#44
post #19

Earlier quoted context omitted.

Did you win the Putnam? If not, please don't be "bolder" than this guy: http://en.wikipedia.org/wiki/Ravi_Vakil

"Did you win the Putnam?" Yes, I did.

News.YC does flame wars a whole lot better than the rest of the internet...

Re: The Equity Equation

#45
post #8

A smart company would give 6% equity to YC just for the advice and publicity. The cash is the least valuable part of the equation. 5k per person can be saved up in a number of months, even for relatively low salaries if you are stingy.

I'd honestly be surprised at this point if nobody has offered to pay YC to take equity in a startup.

Am trying to remember if I did that after I was rejected from SFP2005...I know that I offered them free equity in exchange for advice and the ability to come to the YC dinners, but I can't remember if I offered cash. Probably not, as I was poor at the time.

My offer was ignored, BTW.

Re: The Equity Equation

#47
post #5

Nice article, but drastically oversimplified. Paul ignores two critical issues: Risk, and non-linear utility-of-money functions. These two factors become critical when there is a tradeoff between probability of success and the payoff of success. Suppose, as a simple example, that I have a startup which I think has a 50% chance of succeeding and being sold for $1M, and a 50% chance of failing and being worthless. Now…

yep, immediately thought of that too. PG writes VERY good stuff most of the time and is very smart about a lot of things, but when he strays into areas in which he is not well versed (the unions essay comes to mind), he ends up writing pieces with obvious holes.

Re: The Equity Equation

#48

Earlier quoted context omitted.

Again you're right, and I'm sorry about the attitude. Over the past year I've started to get rather defensive when people have suggested that I'm wasting my time on this project...

I get a whole lot of that (even from my family: my sister told me "So, mom and I were talking in the car, and it's great that you're doing this startup, but honestly I don't think you'll succeed.") When I gave notice today, I had to listen to my boss go on about how I was too young to start a startup (I'm 26), how he spent about 15 years after getting his Ph.D learning about business and working in the industry, how…

Good god, the amount of useful and practical advice in this comment is astounding. I hope you get 20 karma points. If you follow that advice you're 90% to success, because it says a lot about your personality. No wonder YC wants people to participate in YC News.. If I had any money I'd invest it in you.

Re: The Equity Equation

#49

Earlier quoted context omitted.

"Or even 90% of YC-funded-startup founders for that matter" Not to deny this, as I don't know anything about you, but... that is a very bold statement.

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.

Re: The Equity Equation

#50
post #5

Nice article, but drastically oversimplified. Paul ignores two critical issues: Risk, and non-linear utility-of-money functions. These two factors become critical when there is a tradeoff between probability of success and the payoff of success. Suppose, as a simple example, that I have a startup which I think has a 50% chance of succeeding and being sold for $1M, and a 50% chance of failing and being worthless. Now…

In this case, oversimplifying is warranted, mostly because the things glossed over are either sufficiently complicated that it's hard to make simple, or are things are already generally known.

Take, for example, the 50% point. Once you hand over so much stock that the amount you and the people you implicitly trust hold dips below 51%, you've lost control. Clearly an issue outside of the 1/(1-n) equation, and yet not really relevant. Everyone knows this already.

Then there's the general notion of not handing out too much stock to too many factions, but this too is more or less established knowledge amongst the target audience.

Having said that, the nuance of factoring in odds of success is a worthwhile consideration. Hat off for explaining it!

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