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How People Get Rich Now

paulgraham.com

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Re: How People Get Rich Now

#511

Post by whimsicalism »

medvezhenok wrote: post #499
whimsicalism wrote: post #406

Earlier quoted context omitted.

Yeah, I don't think that is true.

Around 1% of seed-funded companies go on to become unicorns (>1B valuation). Total market value of unicorns ~$2T (~600 unicorns). So average unicorn valuation ~3.3B USD. Let's say you're the founder and your [ultimately diluted] share of the company is 10%. You have a 10Y runway. Your EV in startup case is 330M (10% of 3.3B) * 1% chance of success = $3.3M or $330K USD per year. This is only counting the extreme (unic…

What percent of entrepreneurs create seed-funded companies?

$3.3m in NW is 100% beatable in FANG.

Re: How People Get Rich Now

#512

Post by jefftk »

purple_ferret wrote: post #95

>So it's not 2020 that's the anomaly here, but 1982. The real question is why so few people had gotten rich from starting companies in 1982...a wave of consolidation was sweeping through the American economy Microsoft, Oracle, Apple, Bloomberg, etc were all started in the late 70's/ early 80's. Their founders are the richest people in the world. Seems like the question he's asking, though, is why weren't they obscene…

> Microsoft, Oracle, Apple, Bloomberg, etc were all started in the late 70's/ early 80's. Their founders are the richest people in the world.

How are they the richest? Per https://www.forbes.com/real-time-billionaires/ Gates is #4, Ellison is #7, and Apple/Bloomberg/etc are lower. Above Gates are the founders of the much later Amazon and Tesla (then there's FB, Google, etc)

Re: How People Get Rich Now

#513

Post by sillysaurusx »

benzor wrote: post #488
heylook wrote: post #458

Earlier quoted context omitted.

> - Large unicorn startups that are perpetual money losers continue to operate only because they are effectively subsidized by regular capital raises. Look no further than all the Silicon Valley darlings such as Uber, Netflix, AirBnb, Tesla, and so on. All of them would cease to exist without continued capital injection from secondary share offerings or VC raises You should look up the financial statements of the com…

Apologies for some hastily chosen examples. I think the point still stands if you consider the following companies: WeWork, Lyft, Snapchat, Pinterest, Dropbox, Slack, Casper, Lime, Peloton, Beyond Meat, Wayfair, Zillow. More generally speaking, take a look at Goldman Sachs' Non-Profitable Technology Index: https://pbs.twimg.com/media/EsRVCiMXIAE7xlA.png

Why Dropbox? Did something change?

I haven't paid attention for many years, but at one point is was an extremely profitable company.

Re: How People Get Rich Now

#514

Post by areyousure »

jedberg wrote: post #213
api wrote: post #22

Earlier quoted context omitted.

I'd be more interested in a study of how people move from lower classes to at least upper middle class.

Unless it's changed recently, I believe there is exactly one person on the billionaires list that started life in the bottom quintile -- Oprah. So you have a good question is all I'm trying to say.

https://www.forbes.com/real-time-billionaires/

#1 was born to a teenage mom (and an alcoholic/deadbeat dad). Since she was still in high school, I assume she was probably in the bottom quintile of income.

#7 was given up by his mother and adopted.

#9 was born in the Soviet Union. It's likely his family's income (in rubles) was in the bottom quintile of the United States at the time. (Sources I've found suggest that the top 1% income cutoff in the SU was around 250 rubles per month, which is less than the $5,000--$7,500 cutoff for the bottom quintile in the US at the time.)

#13 was born in Yemen before his family moved backed to India. One could probably assume that he was in the bottom quintile by US standards, because even today, the top 10% cutoff in India is below the bottom 10% in the United States.

#18 was born in China and I have little doubt that he was far below the bottom quintile cutoff for the United States growing up.

You might think it's a stretch to call Bezos's family "bottom quintile", but saying that billionaires Zhong Shanshan, Xu Jiayin, or Qin Yinglin weren't is hard.

Re: How People Get Rich Now

#515

Post by curiousllama »

nostrademons wrote: post #319
teachingassist wrote: post #204

Earlier quoted context omitted.

> 10x the median income just isn’t that much. If you have three kids You are taking home (in California; approximately) net 7.4 times what people with three kids on the median income are taking home. If you choose to live a median lifestyle, you can save 86% of your net income and therefore retire on it within 4 years.

Just as a counterpoint - if you believe that the median person is about to get screwed (either by civil disorder, famine, inflation, corporate restructuring, housing shortages, rentier landlords, conscription, etc.), then it's worth paying a premium not to be the median person. Judging from social & news media these days, the median person believes that the median person is about to get screwed. The "live like the me…

> if you believe that the median person is about to get screwed, then it's worth paying a premium not to be the median person

You have a remarkably apt username

Re: How People Get Rich Now

#516

Post by sillysaurusx »

adwn wrote: post #388
purple_ferret wrote: post #95

>So it's not 2020 that's the anomaly here, but 1982. The real question is why so few people had gotten rich from starting companies in 1982...a wave of consolidation was sweeping through the American economy Microsoft, Oracle, Apple, Bloomberg, etc were all started in the late 70's/ early 80's. Their founders are the richest people in the world. Seems like the question he's asking, though, is why weren't they obscene…

> Every time I read one of PG's posts, it seems like he's working from a narrative that he's trying to conform facts to. Indeed. Compare this gem from [1]: You could probably work twice as many hours as a corporate employee, and if you focus you can probably get three times as much done in an hour. [1] You should get another multiple of two, at least, by eliminating the drag of the pointy-haired middle manager who wo…

Hm? That paragraph is accurate. When you're free to work flat-out – as hard as you can, as much as you want – you can make a lot more progress than if you were paid to do the same thing for someone else.

36x may not be the exact multiple, but it's correct within a power of two.

Re: How People Get Rich Now

#517

Post by cupofcoffee »

anonu wrote: post #402
whimsicalism wrote: post #361

Earlier quoted context omitted.

When you use the phrase "reward", are you talking expected value? Or top of the distribution? Because if it's expected value, I doubt "entrepreneur" is high reward compared to FANGs "moderate reward".

Yes, EV. I certainly think tech entrepreneurs go into a startup opportunity impassioned by their ideas, but knowing they could IPO or exit at some point in the future for a sizeable amount of cash is certainly a motivating factor. EV = Probability * Outcome Probability is very low of an IPO outcome - but EV is probably still higher than FANG work.

Your intuition is wrong.

Suppose, 10^-9 odds of a startup making 10 billion. Let's assume the other terms are negligible.

E_startup = ... + 10^-9 * 10^11 = 100$ E_faang = 10^-1 * 10^5 + 10-2 * 10^6 + ... >= 10^4

Re: How People Get Rich Now

#518

Post by [deleted] »

alpha_squared wrote: post #465
missedthecue wrote: post #452

Earlier quoted context omitted.

Performance and incentive alignment. John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast, and he plays a very minute part in the direction of the business. The CEO on the other hand can have a huge impact, and it's why shareholders choose and vote on certain incentives and bonus…

> John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast. A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving. Note: stock o…

[deleted]

Re: How People Get Rich Now

#519

Post by davvolun »

alpha_squared wrote: post #454
missedthecue wrote: post #433

Earlier quoted context omitted.

I hate this comparison. Stock based compensation didn't exist in 1965. It's an oranges to apples comparison. CEO salaries today are still about 20-1, depending on the business. For instance: - Doug McMillon of Walmart makes $1.2 million in salary. - James Quincy of Coca-Cola makes $1.5 million in salary. - JPMorgan's CEO Jamie Dimon has a $1.5 million salary. - Sundar Pichai of Google makes $2 million in salary. You…

You're not wrong, but the perspective feels like missing the forest for the trees. So what if stock-based compensation was uncommon in 1965? The average employee doesn't get to benefit from the very real contributions they've made to the company, while the CEO does benefit. Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs? That's still relevant. Additionally, your c…

Exactly, pensions were considerably more common in the 1960s also, but at the end of the day, I don't really care if my retirement is actually funded by a pension or a 401k or by stuffing dollar bills under my mattress, I want to know when I can retire and how comfortably I can live when I retire.

Yes, getting into the weeds is valuable, but here we're talking about the money in your bank at the end of the day, and that CEO salaries haven't changed much doesn't say anything.

Yes, a CEO should be making more money than the average employee. The debate is over how much -- why do CEOs get absolutely massive bonuses and golden parachutes and stock options and for employees it's expected that you put in the work in the hope of future recompense in terms of bonuses, promotions, etc.

Re: How People Get Rich Now

#520

Post by medvezhenok »

whimsicalism wrote: post #511
medvezhenok wrote: post #499

Earlier quoted context omitted.

Around 1% of seed-funded companies go on to become unicorns (>1B valuation). Total market value of unicorns ~$2T (~600 unicorns). So average unicorn valuation ~3.3B USD. Let's say you're the founder and your [ultimately diluted] share of the company is 10%. You have a 10Y runway. Your EV in startup case is 330M (10% of 3.3B) * 1% chance of success = $3.3M or $330K USD per year. This is only counting the extreme (unic…

What percent of entrepreneurs create seed-funded companies? $3.3m in NW is 100% beatable in FANG.

Sure - I agree; that was only the slice of the pie attributable to the extreme success (1%). There's also exits which are non-unicorn but non-trivial which probably bump that number up quite a bit.

It's a tricky problem in the general case because the skills that would allow you to capture a high compensation in FAANG probably correlate with the skills that would lead to a successful startup (not perfectly, but somewhat), so the better your options in FAANG the better your potential outcome via startup (with much higher variance).

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