[fsckboy]

>so this gives an average yearly salary of 230k. Very close to FAANG senior salary with much more risk

this is just bad analysis, and as part of that you don't understand risk.

Financial risk is the variance of the expected outcomes, it is not a component of the expected value. The risk that you will fall short is always balanced by the risk that you will strike it rich; otherwise, you have calculated your expected value wrong. Expected value does not include variance, it's the missing factor.

your faang salary is your upper bound on income, is the cost you bear eliminating the risk; the risk the entrepreneur takes is rewarded by the option on vast riches.

You are looking backward as if you could have guessed a priori what would happen. If you could guess looking-backward-in-advance that you'd wind up with a faang salary running your own gig, definitely worth "the risk".

[navane]

I don't understand this. Afaik the parent argues that the 230k/yr is a lucky outcome of starting a business, far more people end up with less or nothing. And this "winning" situation of gaining 230k/yr is barely in range of a "sure" outcome of being employed at Google. Concluding that if even a successful entrepreneur is set to gain less then an employee at faang, entrepreneurship is not a sound decision for fang employees. How is risk portrayed wrong here?

[fsckboy]

>How is risk portrayed wrong here?

because he portrayed risk as "the risk of losing money", but that is not a proper definition of risk.

it's easier to understand the concept with the stock market because there is a market price (there is not a market price for startups). If a stock in the market has a price, what does it mean to say that it's a risky stock? that it might drop? No, not if you say that to the exclusion of the risk that it might also go up.

If a company has a price in the market, and you are an omniscient who can definitively say that there are a bunch unaccounted for factors that increase the probability that that stock will go down, what you would conclude (because you are an omniscient who also understands risk) is that the price of the stock is wrong, not that the riskiness has been mis-assessed.

This is an important area of finance, it's the basis, or rather the inescapable conclusion, of option pricing, the famous Black-Scholes model. It turns out the option price calculation does not contain any of the probabilities of what might happen to the stock/company in the future, the option price is only based on the variance of the outcomes. How can that be? Turns out the probabilities (the expected value) have already been accounted for in the market price of the underlying security. If a market is fairly pricing stocks, riskyness means degree of variation in outcomes.

There is a probability in variance, the probability "that you will wind up away from the mean". the FAANG salary is the mean, with no risk, meaning you aren't going to fall below or go above. He called out the other option as "risky" and somehow decided that the outcome this founder experienced was the upper limit, had no chance of being higher. He had no basis to think that, and his analysis is basically Monday night quarterbacking. "Since you didn't make the field goal, you shouldn't have tried, should have tried for a touchdown instead", ignoring that on average it's easier to get a field goal.