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The Equity Equation

paulgraham.com

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Re: The Equity Equation

#31

Post by byrneseyeview »

donna wrote: post #9

From my perspective it's partically an emotional path, not merely an analytical path. A company that's a startup has an intention, and it's one of these: 1. You use resources to incrementally grow a user base and get market share, then sell it off to a bigger company 2. You develop technology that enhances a company's market share and pulls users from a competitive company's market 3. You lose, and the investor loses…

"The equity value is not just based on "here's some money for X cents on the dollar" X it has to go beyond that."

Uh, no it doesn't. Equity has value, and so does what you get when you give up value. When you're like for like, emotional attachment doesn't make sense.

Re: The Equity Equation

#33

Post by dhouston »

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.

we're in a similar space -- http://www.getdropbox.com (and part of the yc summer 07 program) basically, sync and backup done right (but for windows and os x). i had the same frustrations as you with existing solutions.

let me know if it's something you're interested in, or if you want to chat about it sometime.

drew (at getdropbox.com)

Re: The Equity Equation

#34

Post by dbosson »

cperciva wrote: post #17
ivankirigin wrote: post #14

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…

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.

Re: The Equity Equation

#35

Post by create_account »

cperciva wrote: post #13
ivankirigin wrote: post #11

Earlier quoted context omitted.

"I really don't want to spend years of my life on something which has a 90% chance of being worthless." How does that mesh with the fact that a failed startup is probably worthless (in the literal sense that you can't make money from it), and most startups probably have >90% failure rate? I know there is a learning experience in startups and that working hard on something fun is valuable, so worthless is really just…

I don't think my probability of failure is 90%. :-) This isn't as naive as it sounds: If you take VC with standard liquidation preference terms, the company needs to do really well before you get anything back -- so the amount of money you need to avoid "failing" is dramatically increased. In my case, since I don't intend to take any VC, there's a wide range between "failure" (making less money than I would have earn…

Well, if you want to impress people with your startup prowess, you're better off succeeding in that context before bragging about it.

I have no opinion of you or your entrepreneurial abilities in the same way a physicist has no opinion of gravity.

If I can measure what you've done (e.g. in terms of customers, revenues, successful exit sale, etc.) then I'll respect you (or not).

Re: The Equity Equation

#36

Post by cperciva »

dbosson wrote: post #34
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…

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.

Re: The Equity Equation

#37

Post by create_account »

cperciva wrote: post #30
yubrew wrote: 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...

That is entirely the wrong way to respond: you will get a lot of that (from VCs, prospective clients, etc.) and dealing with it like that is guaranteed to lead you to failure, simply because everyone will come to see you (rightly or wrongly) as a complete prick.

Re: The Equity Equation

#38

Post by dbosson »

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.

"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."

Re: The Equity Equation

#39

Post by zach »

togilvie wrote: post #16

This is a nice analysis and good thinking, though it's worth noting that liquidation preference makes the VC equation less favorable. I'm not sure how Y Combinator works, but preference plays a shockingly large role when you run these types of calculations against your hypothetical VC deal.

Given PG's formulation, liquidation preference plays no part in the value-of-equity equation, since it can be factored out into the average outcome.

But sure, it does tend to depress average outcome. Then again, if your outcome is dominated by the presence of very-high-value possibilities, a reasonable liquidation preference may be no big deal.

Re: The Equity Equation

#40

Post by euccastro »

cperciva wrote: post #23
yubrew wrote: post #22

Earlier quoted context omitted.

So you've shown that you have some (impressive) academic achievements, but have you had any business success? Just because you're book smart doesn't mean you will have a successful start up. Many times people think that they can transfer great success from one domain into other domain. Michael Jordan and his short baseball stint is the first thing that comes to mind.

You're quite right, and if I do fail I entirely expect it to be due to a lack of business experience. But on this topic I'm working entirely based on what Paul says -- that being able to build something which people want is far more important than being able to sell it.

A crucial part of making something people want is finding out what people want. Intelligence is an advantage, of course, but is no guarantee. For one thing, it may make it harder for you to understand the needs of the less gifted and educated.
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