Is it Time for You to Earn or to Learn? • Hacker News Board

Re: Is it Time for You to Earn or to Learn?

#31

Post by graycat » Wed, Mar 20, 2013, 1:48 PM UTC

dasil003 wrote: post #28

graycat wrote: post #26

Earlier quoted context omitted.

The "chances", that is, the probability, is close to irrelevant. Instead what is just crucial is the conditional probability conditioned on the information one has. Even if the probability is low, with suitable extra information the conditional probability can be quite high. You understand: You saw the move 'Wall Street', right? So, what was the probability of a big move up of the PA steel company? Low, right? "A dog…

Yeah, I "get it". Sheesh, no need to be so fucking condescending. If it's so easy to pick winners why aren't you doing more angel investing instead of complaining about hot air from VCs?

Here is an explanation of some of the 'difficulty in picking winners': A lot of entrepreneurs try projects, and, right, maybe only 0.5% get an exit 150+ million. But a point is that, how many of those efforts were actually well planned? Not very many. Of the well planned projects, the chances should be much higher. Again, to pick good projects, have to use a lot of information, more than can use when just playing a lottery which, in effect, the 0.5% number assumes.

More generally, the goal is something exceptional. Can't get much insight into that looking at what was not exceptional. But there are some good guidelines for being exceptional. Yes, there are not many examples among the famous IT successes. From this you can conclude either that the path to being exceptional doesn't work or that there are good opportunities.

Whatever the entrepreneurs are, it's easy enough to identify the several dozen well known venture partners. Sadly, for the well known path to being exceptional, they are not and, really, don't have the backgrounds to do the evaluations. E.g., they are not much like the problem sponsors at NSF, NIH, or DARPA or leaders of significant, advanced projects at major labs or businesses.

So, again, the VC business model is not following all the promising paths to success.

For me, this isn't about me.

Re: Is it Time for You to Earn or to Learn?

#32

Post by michaelochurch » Wed, Mar 20, 2013, 1:54 PM UTC

graycat wrote: post #20

As usual, Mark tells a good story by leaving out a lot. So, he has "(0.5%) eventually sell for $150 million or more". Okay, so what? Is his argument that the chances of an entrepreneur are just a lottery draw with winning odds of 0.5%? If so, then that's misleading. Why? Because it shouldn't be a lottery draw. Instead, the entrepreneur should know more than just a lottery draw. The entrepreneur should have done some…

The idea that ground-floor employees know more than investors about a company is completely off the mark. Founders have the most information. Investors come next. Employees are dead last. They don't know shit about a company's prospects. Investors get to see the cap table, the compensation structure, and have the social access to vet the key players. Employees have none of that. If an engineer gets 0.25%, then the other 99.75% is completely opaque to him.

People tend toward overconfidence and therefore want to load up on their own performance risk. That's fine. If you're a +3 or +4 sigma intellect, you probably are smarter than people will perceive you as being. That's one key informational advantage you have over the rest of the world: you're smart, they don't realize it. But... that means nothing once you're subsumed into a 50-person "startup", whose macroscopic performance is not really changed by taking on a +4 sigma guy at some dippy subordinate level.

VC-istan investors are the ultimate insider traders. They know everyone, including the acquirers who make markets for their wares. As an employee, you don't. In VC-istan, you don't know shit and the earlier you learn this, the better.

Re: Is it Time for You to Earn or to Learn?

#33

Post by jwwest » Wed, Mar 20, 2013, 2:55 PM UTC

Everything seems to come back to that good ol' fashioned advice:

"Do what you love and the money will follow"

It's pretty cliche, but the point is that you need to actually enjoy what you're doing and worry less about the money (unless you're in love with money, in which case go get a job on Wall Street). Sure, the chance to cash out big is a huge plus, but as Mark pointed out unless you're a founder it's very unlikely.

This is most likely a contributing factor to the talent crunch in the Bay Area. No one wants to take the chance on being the #1 or #2 engineering employee since the odds are weighed heavily against you. I imagine most sane people would look at it like this:

C-level / Founder: Risky, less salary now but larger option grants. Lots of hours.

Early employee: Riskiest. Less salary and less options. More hours.

Later employee: Least risky. Salary approaching market rate. No significant options. Hours that approach a normal work week (~40).

Re: Is it Time for You to Earn or to Learn?

#34

Post by dgreensp » Wed, Mar 20, 2013, 4:15 PM UTC

michaelochurch wrote: post #29

argonaut wrote: post #21

Earlier quoted context omitted.

The fact that investors are diversified and you're not is not a reason to value your equity stake differently than their equity stake. However, another valid reason to undervalue your stake relative to investors: the fact that investors get liquidity preferences.

The fact that investors are diversified and you're not is not a reason to value your equity stake differently than their equity stake. Actually, it is. For some theoretical literature on this, look into the Kelly Criterion, which argues that the best financial strategy is to optimize for log(W), where W is your total wealth (including future income, properly discounted, less costs of living, if one wants to get techn…

Well, to put this in the context of the original article, it was actually talking about executive-level positions. To grab some numbers from a random blog post (http://www.avc.com/a_vc/2010/11/employee-equity-how-much.htm...), a VP Product (or CEO) could be looking at a $175k salary with $87k/year of equity, while an early engineer might make $125k plus $31k/year equity (in his example). The posted article is mainly saying if you're going to settle for "only" the CEO numbers (175+87), rather than true fuck-you money, be sure you're at least meeting lots of VCs and building your network (for a future venture?). I don't think that's most people's take on the matter either.

I agree that very small equity grants don't exactly help engineers pay the bills compared to salary. In fact, small increases in salary seem to confer disproportionate financial and psychology benefits to employees, while stock options are more abstract, and looking to other fields they don't seem necessary to retain skilled professionals. So why not pay engineers with all salary and hold onto the stock? Mainly because start-ups have limited cash too, and equity to give away.

However, at the risk of over-generalizing, I think the competitive job market in the Bay Area means that engineers are paid good salaries plus at least a token amount of stock. For an early employee, it could mean a little icing on the cake, or in the best case significant wealth.

Re: Is it Time for You to Earn or to Learn?

#35

Post by argonaut » Wed, Mar 20, 2013, 7:55 PM UTC

michaelochurch wrote: post #29

argonaut wrote: post #21

Earlier quoted context omitted.

The fact that investors are diversified and you're not is not a reason to value your equity stake differently than their equity stake. However, another valid reason to undervalue your stake relative to investors: the fact that investors get liquidity preferences.

The fact that investors are diversified and you're not is not a reason to value your equity stake differently than their equity stake. Actually, it is. For some theoretical literature on this, look into the Kelly Criterion, which argues that the best financial strategy is to optimize for log(W), where W is your total wealth (including future income, properly discounted, less costs of living, if one wants to get techn…

This is an argument for valuing a diversified portfolio over one that is not diversified. However, there is no reason to value the same plain vanilla X number of shares in of themselves differently just because they are held by different parties (you or the VCs).