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Comment by harshaw | Hacker News Reader

I don't want to derail this too much with personal anecdotes, but I suspect you are much more likely to build wealth with the more established tech companies - and that wealth is "rich enough".

Maybe I am just unlucky or unskilled, but I spent roughly 20 years working at startups or innovation labs. I was "close" to some big events where I could have made big $$ but made 0. Both at my own startup and being at early stage duds. Its kind of like I was the tech guy in 'life of Brian'. However, in the last three years I have built more wealth at a FAANG than I have in the previous 20 years. YMMV.

Back to the thesis, I think pg is saying wealth is built by startups - I am just here to say that's it still really rare unless you get lucky. But maybe you create your own luck by living in SF - I am a Bostonian.

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Over 25 years, I worked for 4 startups, 2 pre series A, 2 series A. All were VC funded, high growth, successful. 3 were acquired; 1 stayed private.

I worked for startups because I really wanted to “get rich”. And, I put way too many hours in trying. In the end, I did get moderately rich. But, honestly, it was mostly from saving and investing well, not from exit events. Unless you play the political game, I doubt you’re gonna get rich from options. And, they don’t write the options contracts like they used to.

When I started working, I made $30k / year, and I loved my work. Now, I make $180k / year, and I hate it. I hate the people mostly, and the politics. Lol. I do have enough to retire early, and I probably will because generally I feel the golden years of software development seem over. I liked it better when it was a bunch of nerds playing with tech - people who loved it. Now, it’s more people who would have otherwise gone into banking. Ymmv.

I have a similar background, and also miss the 90s where the people playing with tech were not thinking about the money but actually enjoyed the coding.

What I find hopeful about Paul's essay and the current state of the world is that I can start my own company for next to nothing. And I only have to find a couple customers to cover my living expenses. I'm not going to be the CEO of a billion dollar company and that is fine. I don't want to have those responsibilities.

Not sure about that. Let’s say you have 10x cheaper tools, but 1000x more competition can you still make it?

The world is becoming more fragmented and long tails are getting longer. I'm not going to build a competitor to Facebook or AWS, but there are thousands of small untapped market segments.

Yeah living in SF (or just the bay area) is pretty key.

AirBnB, Uber, Tesla, FB, SnapChat (LA based, but a lot of friends moved there to join friends from the peninsula and knew about it because of being here/near Stanford), Lyft, Snowflake, Stripe, eventually Robinhood, Roblox, Palantir, etc.

I'm not saying luck isn't a factor - but the equation changes dramatically when you're in the bay area. A lot of people I know have been through exit events of some sort, many clear $1-5M via that (which is about enough to buy a house if you're closer to the $3-5M side). Fewer clear $20M+.

That said, you could also have just worked at a FAANG and probably have saved $1-2M if you just stayed there over the last ten years (and obviously if you were at FB pre IPO in 2012). There's also a lot of opportunity to grow in that environment which can lead to higher incomes (particularly at a place like Netflix that just pays a lot up front).

Doing a non-bay area startup seems riskier to me than working at a FAANG. If you live in the bay area for a bit - it's easier to learn which startups are likely to succeed.

There's a reason YC moved from Boston.

Likewise, even down to being in the Boston area. I did OK at a couple of the eleven startups I worked at, but still made even more over just a couple of years at a FAANG. Many of my former colleagues on both sides have had similar trajectories. The vast majority of the "merely rich" in tech got that way by working at companies that had already broken away from the pack.

Speaking of breaking away from the pack, that brings us to the ultra-rich. AFAICT what pg has shown is not that building wealth alone is a path to riches (nor was that his intent AFAICT). The way to become ultra rich is to be one of the "lottery winners" among a cohort of relatively minor wealth creators. Playing the lottery is just as essential as building wealth, just as with literal lottery winners. The main difference is that this lottery isn't entirely random. Even among those who make it into the first round (founders), some players have certain innate advantages over others in the second. There's little demographic distance between Gates, Ellison, Bezos, and Musk - and Graham, for that matter. It's no accident. If you want to become seriously rich, it helps if you can afford to ride out risks - or even actual losses - that would force others out of the race.

I think this is true in the common case, but I thought Bezos was raised by a single mom who had him at 17 and his step father was a cuban immigrant?

https://www.aboutamazon.com/news/policy-news-views/statement...

There's also the donut king: https://news.ycombinator.com/item?id=25241898

I'm not trying to just pick rare counter examples, but I'm skeptical of the claim that there's little demographic distance or the implication that it's a prerequisite. One of the reasons people like the US is an immigrant can come here and they themselves (or their children) can become the richest person in the world (or the vice president).

I'd agree there's a randomness element, but it's less lottery and more placing bets with odds that are hard to determine. Some people have better initial odds, but that's only one part of it.

If anything - I'd hypothesize that extreme outliers share something other personality trait more relevant than demographics, willingness to take huge risks. You could argue that someone who has more of a safety net is in a better position to do so, but someone who has nothing to lose may also find the tradeoff easier. It's possible that most people in a relatively comfortable position would be less likely to take the big kind of risks that outlier payoffs require (I'd guess this is one reason why we have few people like Elon Musk).

yeah, I think his adoptive dad was reasonably well-off though

I think "demographic distance" makes sense if you think of it in terms of "Coming from a family of at least moderate wealth". My family was pretty poor, and there's a lot they couldn't teach me about money because they just had no idea. Plus, my whole life I've had to set aside $X per month to keep the family afloat, so it's made it a lot harder to dink around with startups that aren't going so well.

I don't think I can get as rich as Bill Gates myself, but I'll bet I can get as rich as his dad, and give my kids a shot at becoming mega-billionaires

The point about the demographic similarities doesn’t go away when you include outliers. Their are vastly more people with poor backgrounds so having them underrepresented doesn’t go away with a few exceptions sprinkled in.

People talk about America as a meritocracy yet, the US has had vastly more presidents closely related to previous presidents than say Black, Hispanic, and or Female presidents combined. That’s to put it bluntly not he outcome of random chance even if you’re limiting things to just white men it’s obvious something else is involved.

https://www.factmonster.com/us/government/executive-branch/u...

I don't disagree really - and the president issue is somewhat separate given its political nature and obvious historical context.

As I said, I agree in the common case - I just see people generalize and include in their examples people that contradict them (Bezos, arguably Musk too).

Extreme outliers are often outliers in more ways than one.

Yep, I wouldn't say I've had as much startup experience as you but I did work as employee #4 at one and then after that at a startup that got acquired by Google and while I did get a windfall out of that it certainly didn't make me rich and I've made a lot more money in the years since just taking in my regular FAANG compensation.

FAANG compensations can be quite high. Arguably they are that high precisely to siphon up headcount that would in the past alternatively go into other ventures to seek wealth there. But I would say that these high compensations seem to me to be set precisely high enough to hoover up talent but not high enough for employees to achieve "escape velocity" entirely from the market (without extreme financial discipline anyways)

Regarding the "escape velocity", it really isn't that tough IMO to save enough to retire when you're making 5-10x the median household US income, even if you're wasting $3500/month on rent. Yeah, milk and gas cost about twice what they do in the rest of the USA, but since I moved to the Bay Area I've been saving over a third of my income without even trying despite having a kid, eating out every day, and buying every gadget and gizmo I hear about

~5 years of savings can buy you a house out in the outside world so you can take a stab at building a ramen-profitable startup

~15 years' worth can probably cover regular old retirement at a level that'd be comfortable for people from https://old.reddit.com/r/FinancialIndependence

I think this is exactly what the parent commenter meant. You'll be able to retire comfortably after your most productive years, but you most likely won't be financially independent within 5 years and have the means to focus on building a startup.

> Maybe I am just unlucky or unskilled, but I spent roughly 20 years working at startups or innovation labs. I was "close" to some big events where I could have made big $$ but made 0.

Probably holds for many people, but we mostly hear the success stories only.

I've worked two startups and two public companies (and a University) in my career. Other than the small salary, I made nothing from the startups. The first public company made me enough to buy a house in the Bay Area and the second made me enough to fund my own startup as well as invest in others.

So yeah, my experience tracks with yours -- all my wealth was made working for public companies (that I happen to catch during their biggest periods of growth). To be fair though, that may change if my investments work out. Then most of my wealth will be from investing in startups.

He is saying you are more likely to become a Billionaire by starting a company than by joining a FAANG as an employee. Now that is a 1:1000000 event instead of a 1:5000000 event like it may have been in the past. I will forgive you if you still think it is unlikely.

Most people's goal isn't (and shouldn't be) $1B. If your goal is a more reasonable $5M then joining an existing company is still your best bet. I am going to plan my own like around the MEDIAN result which makes startup stock $0, and the salary wins.

That's sort of my take. Super wealth comes from founding or having a large stake in a unicorn. That's of course true but also rare and sort of like a kid betting his future on playing in the NBA. Sure some people make it, but the vast majority do not.

"Enough" wealth -- i.e. retiring with millions in assets, is much more attainable by anyone who simply invests sensibly over the course of a working career. You don't even need stock options or equity compensation or a SV salary.

What about those billion-dollar companies that never made money but got acquired by FB, MS etc? Their founders did build a company, but if it wasn't for FAANG's insane profitability, which makes the cost of their moat so high, they wouldn't be worth that much. They essentially joined facebook as employees to make their billions.

Average exit event (going public or getting bought) won't out-pay working for FAANG. The chances that it does are like 10%, and that's if there is a real exit, instead of just a wind-down.

Dustin Moskovitz presented that point in the invaluable How to start a startup series - https://youtu.be/CBYhVcO4WgI

A good resource when deciding on your future ambitions

I think this is a good lens to look through.

If you want the BIG payout and "f u" money, then forming your own company is now the highest odds way to make that result. The chance of abject failure ($0 payout) is still high but even that isn't necessarily true these days with the experience and learnings leading you to FAANG jobs (should you choose) anyways. You do fall behind your colleagues who started at those jobs earlier, but they won't reach that $1B goal that you had and now neither will you; the difference being you gave it a shot (and the highest odds shot).

PG's point might be simplified to say starting a company is the newest highest odds way to be super rich.

You are not unlucky the vast majority of startups fail.

You need to be extremely lucky, extremely talented, extremely ambitious basically extremely everything to create a company and get rich from it.

It's pretty much a pipe-dream to create a company and get rich from it. The most likely result is ending completely burnt out and having wasted a couple of years.

False. I personally know multiple people that have done it. And I knew them before they got rich

Right. Even if you knew 100 people that all made startups and made 10M+ it would still prove nothing. What percentage of startups do you think succeed?

I’m kinda busy to go all into this, but generally people who went to top schools and raise from top vcs gave very good outcomes. The problem is when you lump in people with bad or mediocre career outcomes who try to start a company. The data is very misleading, getting funding from Andreesen Horowitz leaves a huge chance of success.

Safe to say PG has a healthy amount of Survivorship Bias.

> but I suspect you are much more likely to build wealth with the more established tech companies

FANG: low variance + moderate reward

ENTREPRENEUR: high variance + high reward

The Kelly Criterion can probably be applied here on how much to "invest" in each opportunity. Ultimately it matters how often these opportunities come up.

absolutely correct, and let's not forget there is the whole spectrum of startups and mid sized growth companies that one can join in between.

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.

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 (unicorn cases) and will obviously vary with equity percentages.

https://news.crunchbase.com/news/private-unicorn-board-now-a...

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).

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

> 10^-9 odds of a startup making 10 billion

Intuitively those numbers feel wrong. theres 7bn people on this planet - and only a very tiny proportion might become tech entrepreneurs. So I think your "1 in a billion" chance of being successful is a bit high. Also, who said $10bn was successful? It is just 1 outcome of many...

I think the consolidation thing he describes is happening again, and we are again entering a period like the 60s where access to the markets is limited by a few small, impenetrable companies, and the only meaningful path to wealth will be working at those companies.

I really hope I'm wrong, but the death of the web and the rise of the censored, anticompetitive app stores seems to be the writing on the wall.

This is exactly why we antitrust enforcement. It's not an easy problem to solve though.

I don't think that's a controversial opinion. Start-ups are high risk high reward. You probably won't truly make it, but if you do you have more money than you know what to do with.

Who's the tech guy in the life of Brian? As in, what part of the movie are you referring to?

Just the whole notion that Brian is the guy whose life paralleled Christ but unlike Christ he was just some random guy.

I think he means he's the tech equivalent. As in, "he was near many historical events, but not the focus or beneficiary of them"

That also sounds a lot like Forrest Gump :)

Forrest didn't care about fame and fortune, went for life and love.

yeah having lived in both cities, I think the likelihood of success in the bay area is going to be higher than in boston for sure.

Rich != Wealth

I think where PG and others are conflating two topics is being Rich vs being Wealthy.

You can certainly become Rich working at FAANG (top 1% earner + appreciating stock ... and it's way less risky than other jobs).

Where you can become Wealthy starting your own company (super high risk, most likely won't even become "rich" doing it, but you have the potential to create limitless wealth)

EDIT:

If you're going to downvote, can you at least comment why you disagree ... so that we can have a productive conversation to hear a differing opinion.

The definition of "rich" is "having a great deal of money or assets; wealthy." Seems like Rich == Wealth as far as I can tell. There is definitely a difference between well-off and wealthy, though.

While not a dictionary definition, I've seen "the wealthy" described as the subset of "the rich" where their money is self-sustaining (passive income that spans generations).

By most definitions, many of us on HN are rich, but few of us are wealthy. Most of us still have a day job and rely on that salary to pay bills and save for retirement.

Chris Rock has a funny skit about being rich vs having wealth:

https://www.youtube.com/watch?v=We8P8J25OKQ

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