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There is a deep flaw in this logic. Person A and Person B are both investing the same amount, just in different forms.

Person A converted their 100k into 1 year of time. Person B converted their 1 year of time into 100k of money.

They both put in 100k of something, B put in 100k worth of time, A put in 100k worth of money. If we assume a fair market rate for the conversion, then essentially this is a perfect exchange, and they both traded their different investments for exactly what they were worth. That is, the money invested, got back EXACTLY the amount of time it purchased, and the time invested got back EXACTLY the amount of money it purchased.

Person A and B are trading things of equal value. This means they invested equally, and hence should split the reward equally.

They are not equally invested. using your method

Company fails

A risked $100k money got 0.

B risked $100k time got 100k money.

A is now at -$100k

B is at zero

My guess it's you'll claim A got $100k of your time so A is at 0 as well but if we follow that logic in other places we can see how it doesn't work.

A pays $10 for B to make a pie

B pays $10 of time to make a pie

A now resells pie for $20. A does not own B any percentage of profit. That's the business success case just replace "pie" with "business". Similarly A drops pie. B does not owe A a new pie. That's the business fail case. $B got their $10 money for their $10 of time. B's risk has now been paid for. A still has a risk, that they can sell the pie. Replace "drops pie" with "business fails".

The problem is you missed the full comparison.

Person A has not the time to invest into building the product, so they invest money, 100k's worth of dollars. Person B has not the money to invest into building the product, so they invest time, 100k's worth of time.

So if we compare dollars in the event of company failure, we have:

Person A is now at -100k

Person B is now at 100k

Person A is now at +1 years

Person B is now at -1 years

Again, this means they both invested equally. What is usually harder to see is the time investment. But Person A gains one year of work they did not have to do on the product (via their investment). Person B loses the year they invest/spend on the product.

Purchasing a product does not imply joint ownership. Consumers do not partly own the profit of the Producer. However, if A and B decided to build a pie product together then yeah, they'd split the profits. Which is what is at stake here in this overall discussion: how should profits fairly get split when two or more parties contribute the resources to build it.

This literally makes no sense, and it wrong even by your own math.

Person A is now at -100k: Agreed

Person B is now at 100k: Agreed

Person A is now at +1 years: If you are valuing 1 year at 100k, then no - they are at zero years. They put in $100K over 1 year, so the two cancel each other out.

Person B is now at -1 years: Again, they have been paid at the rate of $100K for 1 year, so they are at zero years.

Again - I reject this "losing a year" thing. The investor hasn't gained a year at all - you can't lose or gain time. But if you value 1 year at 100K then they have paid for 1 year, but that means they have by-passed other opportunities.

If they invest $100K in 2019 and the company goes bust in 2020 how have they gained a year?

But even ignoring that (!!) your math doesn't work.

Let's say you have 1 year left to live. You have two things you want to do, X and Y, but X and Y take 1 year each to complete. It is the end result you want, but each result takes 1 year achieve, and you only have 1 year left to live. What can you do?

Well, if you have enough money, you can pay for someone else to work on X while you work on Y. In this way, you have been able to get 2 years worth of work done, in only 1 year. In effect, you doubled the number of years you had to spend on getting things done.

Spending money in exchange for someone else's work is a time multiplier on the one who spends the dollars. They get more done in less calendar time, i.e., because they effectively have more effort-time by converting their money to someone else's calendar time.

The entirety of my reasoning in predicated on one simple thing: an investor trades in their money for something of equal value, and the worker trades in their time for something of equal value.

This means, by definition, they are equal partners in the exchange, and hence must split the profits equally. It also means they each gained and lost equally, because they traded evenly.

If you do not agree with the foundational assumption I am making, point out the error in that, as all else necessarily follows.

Also, if the company failed because they failed to deliver that thing you wanted to build does the investor get the time back? No.

But the employee keeps the money.

The entirety of my reasoning in predicated on one simple thing: an investor trades in their money for something of equal value, and the worker trades in their time for something of equal value.

Indeed. The investor buys part of the company, and the worker gets paid for their time.

If you buy shares in Microsoft you get a proportion of the company, not some weird "time" thing.

The investor isn't trading their money for time, they are trading it for a share of a company.

> and hence should split the reward equally

Are you saying that when a company fails, all employees should return their past salaries paid by that company? Because that’s what splitting the (negative here) reward equally with investors would mean.

No, that doesn't mean that at all. If a company fails, investors don't have to return the time they've invested by putting in extra years of work, so it follows that those who invested time wouldn't return the money they received.

Investor A puts in 100k of dollars, the company fails they've lost 100k worth of dollars. Worker B puts in 100k of time, the company fails, they've lost 100k worth of years.

The point is, they are both risking equally, when compared in the same units, time or dollars, but not both. The investor is investing 100k worth of time, and the worker is also investing 100k worth of time. If the company fails, they have both lost that invested time.

Investor A puts in 100k of dollars, the company fails they've lost 100k worth of dollars. Worker B puts in 100k of time, the company fails, they've lost 100k worth of years.

This is complete nonsense.

The worker has received $100k for their time and keeps that money. The investor has nothing.

If you try to argue that the workers wage doesn't count for some reason, then you also should argue that the investor's time counts the same as the workers did. Either way the investors is worse off.

The investor is not the least bit worse off. He gains what the worker loses, and the worker gains what the investor loses. The worker gains the 100k, but the investor gains the extra year of work.

That is, the investor, effectively, gets 2x the time they otherwise would have, because they traded some of their money for someone else's time.

Whereas the worker has now lost 1 year, though they did gain 100k for the time they spent.

If you do not believe that the investor is trading their 100k for something of equal value, then please demonstrate this. For it is this equality that underpins my argument.

Saying the investor "has nothing" is naive, since, as with others, you are ignoring what they traded their dollars for.

In your example, the company fails.

The investor now has an investment in nothing, worth zero dollars.

The worker has $100k.

Yes, give the employees back the time they've spent and they'll refund the money.

> Future money is similar to saying well "if I won the lottery tomorrow".

Eh, expected value is a thing. If you lay 3:1 odds on a coin flip and then win, you get real money and are free to feel all happy about it, but you still made a poor decision.

If an employee has an FAANG offer for 300k but goes with a startup for 100k+options they are absolutely taking a risk. The expected value of those options is very real and relevant.

> Person B risked nothing.

They risked the single thing that absolutely no one, anywhere on the planet, can ever give them back: time.

Yes, they took a lower salary on the risk that it would pay off but they slid in the chips of their days existing on this planet alongside that risk. If no one was willing to take that risk alongside the venture capitalists who only invest easily-replenished money, the VCs would find their investments significantly restricted.

The problem is that the some of the people taking a risk and making investment, often the ones in the worst position, have far less information than others. It is inherently unfair that one "investor" can be worse off than another, especially when stacking up money against time. As the author wrote, this isn't inherently unfair...as long as it's not hidden.

But it's almost always hidden because the "lottery ticket hope" of turning 1% equity into seven figures is spoken of as being a regular amount of risk when, in reality, you'd be better taking that higher salary at a FMANGUNFXZOR company and putting the difference into actual lottery tickets.

(As an addendum, if anyone is about to reply with the words "rational actor" anywhere in it, I'm not moved by that rebuttal. Human beings are not rational all of the time and we are nowhere near as rational as economic textbooks would have you believe. Yet, somehow, that rationality or lack thereof is only called into question whenever the person in the crappier position with less leverage is the one who loses.)

I agree. The idea that time is not risked as an investment is, IMHO, deeply weak minded. Dollars, when used to purchase labor, are essentially acting as concentrated time. It's like a conversion from matter to energy and back. Walking around with lots of dollars is like holding lots of time, more time than you actually have life. So someone with a lot of money has, in effect, a vault of highly dense time they can chip off and trade with someone else, buying, essentially, more life than they could ever have (i.e., paying others to do things they could never in their lives have the time to do).

We humans are such primates, though, that we regard those with far more money as essentially higher class in the social hierarchy, and venerate their actions, and their property, as inherently more valuable than someone with less.

So when investing in a company with money, you are able to participate in that company by buying someone else's time. But, assuming a fair exchange (which is usually not the case for the laborer), then the one who works is trading one year of time for one year of time from the investor, in the form of dollars (assuming a 100k/year salary). However, the investor isn't trading their time in the form of calendar time, but in dollars. The worker is trading their time not in dollars, but in calendar time. The point is, it's an equal exchange. Which, if there are two people, then both would split the reward 50/50 assuming all else is equal.

We get confused as primates because we are comparing dollars and time, not realizing that we need to convert to common units. To know the true fair split, we have to know how much each person invested in the same units, time or dollars, but not both. We have to convert all dollars invested to time, or all time invested to dollars, in order to know the true investment ratios. In the example of Person A and B, both put in 1 year of time, hence a 50/50 split.

Well, but Person B was compensated for her time.

If you hired me to build your house for $100k, and you paid me, and then you sold the house, making a profit of $300k, would you give me $150k? Likely not.

I think a better argument is below from 4ntonius8lock, who says that employees were supposed to get (a) $100k AND (b) stock of some value. But employees were not told all the rules under which (b) could be zero.

What is always overlooked is that Person A was also compensated for their dollars. Person A put in 100k and was compensated for those dollars. They didn't trade their 100k for nothing, they traded it for 100k of something of equal value - Person B's time.

Obviously works for hire do not always imply joint ownership. The reason for the discussion is that we are talking about startups built with implied joint ownership. We are trying to infer the equitable joint split for the reward in building something that is implied, often overtly, to be owned by both parties. Both parties in the two person startup are investors.

Most of the things we purchase with money (we spend time to acquire someone else's effort), are sold as someone else's time. If you pay someone to build a house, it's because they were offering that time for sale. This is why software consultants at most startups never get any equity, because their time was already on sale, and was being auctioned off.

They didn't risk their time. They got paid for it. That is the difference. If they worked for free, then you could argue they risked their time.

They got paid for it in the form of money and stock.

If the stock is worthless, why offer it? The answer to me is obvious, they are being deceitful (the start up and its investors). As stated, the SECs' mission is so that people who deal with securities don't engage in deceitful behavior, since deceitful behavior removes trust which creates friction.

The argument that people's rewards, one who put in $50 in cash and another who and accepted a lower payment/higher risk which resulted in a decreased earnings potential of say $50 should be treated differently is anti-meritocratic. Both are risking $50.

BTW, if the company offered no stock to employees, we wouldn't be having this conversation. But the comments are, or should be, based on the FA of which this is a thread.

If they didn't risk their time, then the investor didn't risk their money, since they too got paid for it.

Investors put in money to get something of equal value back: time. That is why there is no difference. Both parties were compensated.

I feel sorry for people who value their time at nothing.

I feel sorry for all of us who believe that money is the only thing of value that was traded in the exchange. Which essentially is your same point, I know.

All those who say, "yeah, but they got paid, the investor risked their money" completely see no value in the time that was traded for the money, which, almost by definition, cannot be the case. The money invested was done so in order to be traded for something of equal value - time. But most people do not see this, and consider themselves lucky if the person with the money was "generous" enough to let them have some of the spoils of their joint effort.

Even sorrier are those who value their time more than it's worth to anyone but themselves.