The Equity Equation • Hacker News Board

Re: The Equity Equation

#51

Post by gibsonf1 » Thu, Jul 19, 2007, 3:55 AM UTC

cperciva wrote: post #29

menloparkbum wrote: post #24

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.

It looks like a great idea - except - the sucking up of bandwidth to make the first backup. I'm definitely looking for a better remote backup service for my Architecture firm, for which I currently pay far too much, but my server unfortunately is Windows SBS 2003 - whose OS I truly dislike. I am forced to do this for compatibility with my Revit BIM software unfortunately, so I guess your product won't help me.

Re: The Equity Equation

#52

Post by pg » Thu, Jul 19, 2007, 4:05 AM UTC

admoin wrote: post #47

cperciva wrote: 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.

Do you have any specific holes you could point to as examples?

Re: The Equity Equation

#53

Post by admoin » Thu, Jul 19, 2007, 4:16 AM UTC

pg wrote: post #52

admoin wrote: post #47

Earlier quoted context omitted.

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.

Do you have any specific holes you could point to as examples?

I read the union essay a while ago, but your failure to sufficiently consider risk-aversion in this one was a major hole. I don't mean to really criticize that much, you write consistently great stuff.

Re: The Equity Equation

#54

Post by pg » Thu, Jul 19, 2007, 4:17 AM UTC

cperciva wrote: 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…

Actually not. That's why I was careful to speak of the effect of trading equity on the "average outcome" rather than e.g. "average valuation at liquidity." What I'm literally saying is, does the trade improve your odds of getting what you want? That subsumes both your risk aversion and your utility function for money.

Re: The Equity Equation

#55

Post by pg » Thu, Jul 19, 2007, 4:21 AM UTC

admoin wrote: post #53

pg wrote: post #52

Earlier quoted context omitted.

Do you have any specific holes you could point to as examples?

I read the union essay a while ago, but your failure to sufficiently consider risk-aversion in this one was a major hole. I don't mean to really criticize that much, you write consistently great stuff.

http://news.ycombinator.com/edit?id=35171

Re: The Equity Equation

#56

Post by admoin » Thu, Jul 19, 2007, 4:23 AM UTC

pg wrote: post #55

admoin wrote: post #53

Earlier quoted context omitted.

I read the union essay a while ago, but your failure to sufficiently consider risk-aversion in this one was a major hole. I don't mean to really criticize that much, you write consistently great stuff.

http://news.ycombinator.com/edit?id=35171

That works, except then I guess the hole was not making it clear enough that you were talking about utility rather than expected value. The problem with your response, and the reason that I don't really see it as a good explanation, is that your basic principle is far less useful if it requires the user to calculate their expected utility.

Re: The Equity Equation

#57

Post by pg » Thu, Jul 19, 2007, 4:48 AM UTC

admoin wrote: post #56

pg wrote: post #55

Earlier quoted context omitted.

http://news.ycombinator.com/edit?id=35171

That works, except then I guess the hole was not making it clear enough that you were talking about utility rather than expected value. The problem with your response, and the reason that I don't really see it as a good explanation, is that your basic principle is far less useful if it requires the user to calculate their expected utility.

In practice it's not hard, because nearly all founders' utility functions are practically step functions.

Re: The Equity Equation

#58

Post by Anonymous314 » Thu, Jul 19, 2007, 5:15 AM UTC

The article ignores how market prices work - the formula presented lets you know the maximum equity you can give up and still get a positive return by doing so, but incorrectly explains why VCs accept much less - the minimum equity a VC can accept and still expect a positive return on their investment can be far lower than the maximum the startup can afford to give profitably. The VCs are subject to competition with other VCs, so in such cases they cannot force the startup to accept a just-better-than-breakeven deal.

Re: The Equity Equation

#59

Post by ordersup » Thu, Jul 19, 2007, 6:58 AM UTC

kf wrote: post #44

cperciva wrote: post #21

Earlier quoted context omitted.

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

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

Sometimes with the flames on here however, it feels like Craigslist forums, in all of their 2.0 glory... ;)

Re: The Equity Equation

#60

Post by ordersup » Thu, Jul 19, 2007, 7:05 AM UTC

pg wrote: post #3

eposts wrote: post #2

Was this article written in response to Seth Levines comment? What Seth Levine doesn't know or doesn't want to tell is that a lot of YC alums could raise the 5K/founder on their own, so money is NOT the primary reason they are there.

No, I'd been working on it for a while. I'd been thinking of taking that footnote out, since it seemed like everyone now finally understood us. But when I saw that old dumb argument again in the USA Today article, I decided to leave it in.

I can't help but laugh at the audacity of another tech-related investment firm commenting like that. He is trying to persuade people that YC is just writing cheques.