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Comment by ryandrake | Hacker News Reader

Does it make sense to reward risk, for its own sake, so much? It's gotten to the point where picking a startup is like picking lottery numbers.

I pick the company that ends up taking off like a rocket and selling for gobs of money, and you pick the company that ends up running out of cash in 2 years. Our contributions to the businesses being equal, why do I deserve $5M in vested stock and you deserve to be unemployed?

Is this optimal? Is this the best way we've come up with to allocate wealth from entrepreneurship?

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I don't know about optimal, but just like any other market, the job market is symmetrical. Why shouldn't employees who can pick successful companies out of a crowd make more money? Investors do.

They're not being rewarded for picking a company out of a crowd, they're being rewarded for taking less cash.

When a startup gives equity, they are doing it so they don't have to pay as much cash, since the cash is more valuable at the time. (Otherwise they would just issue more equity to pay the employees in cash)

As such, the chef is being given a lottery ticket in return for accepting a pay cut.

Isn't that almost exactly what investors are doing, but on a smaller scale? Both are giving up cash-in-hand for that lottery ticket.

Yes - exactly.

We're talking about huge, outsized rewards, orders of magnitude greater than salaries. Taking less cash may or may not be part of their employment agreement, but as long as they have equity, the amount of salary they take is irrelevant. The people with equity who picked the right company are rewarded, and the ones who did not pick the right company are not rewarded.

Exactly.

But it's also worth considering that there is softer forms of equity, especially in knowledge work, that likely accrues faster working at a successful company. In other words, when "investing in your career", picking good investments is important, regardless of how many shares you may walk away with.

In that way, even given two job offers with no equity, there are probably benefits to taking the job at the company most likely to succeed.

You're looking at this after the fact though.

Imagine 2 scenarios for a corporate chef in San Francisco, who expects his next job to last 10 years: 1) He goes work at Safeway, and earns $60K. 2) He goes to work at Google, and earns $50K with a very high risk lottery ticket that has an NPV of $200K, or $20K/year. (Say 1 in 100 shot of getting $20 million, or use Black-Sholes on an option)

Who are we to begrudge him if #2 pays out? The company does it because it's better for them than getting more VC money to pay the extra $10K.

For the chef, it's a better deal than Vegas, Lotto, or the options market.

I don't think I'm begrudging anyone, and I'm not going to dispute the math behind expected value. Without passing judgment, objectively, he deserves his payout as much as a lotto winner deserves theirs, as much as any net-positive-EV speculator deserves theirs, since the act of picking a startup is similar to that of picking lotto numbers.

Once we agree on that, we can debate whether lotteries are a great way for our economic system to allocate wealth.

I think we're on the same page. It may or may not be, but shouldn't people be free to choose to enter a lottery? (Assuming there isn't fraud on the chances)

What is the other person deserve to get?

You still gain all of the experience of having helped start a company. you gained SOME monetary compensation. In the end, one person made the better decision (whether or not they knew it), and is being rewarded as such.

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