[readingnews]

The real problem is his example, "you start off with 2 million dollars and 95% growth rate".

Fine, show me the average person who can come up with 2 million dollars. I sure as hell can not. I even went to banks and founders with my ideas, cash flow sheets and customer list looking for a loan.

No, I am convinced, the rich already have 2 million dollars, and make themselves a billionaire. The system is rigged against "normal" people.

[GlibMonkeyDeath]

He was talking about an equity stake in a start-up. Although on paper it is worth $2M, it is (probably) not liquid (i.e, the shares can't be traded easily, maybe at all.) The vast majority of founders don't literally spend $2M from their checking account to purchase their position in a start-up - they get some ownership as part of taking the start-up risk.

[oreally]

Is there some standard he/people use to come up with the initial company paper-stock worth? A 2m company I would imagine needs to have some tangible traction already.

[GlibMonkeyDeath]

Of course - at founding, if $20M goes into the company at $1 per share, and the CEO gets a 10% equity stake (usually subject to restrictions), then the CEO has $2M on paper (or will have after possible vesting.) Real money in this case came from the original investors that flowed into the company in exchange for ownership, but the CEO can't really do anything with his shares yet. At this point the original investors are taking a huge risk with their money - chances are, they just lost $20M dollars, and probably even more, as it can often take a long time of putting good money after bad.

Once a company starts operating, but before revenue (and hopefully eventual profitability), the valuation is trickier. The share price _should_ be the number of shares divided by the sum of all future profit (minus current debt.) Which is hilarious of course, because no one actually knows the denominator.

That original $2M equity stake can grow to billions if the company ends up making something that a lot of people want or need, so the sum of all future profit is large. Or, much more likely, it will be worth nothing, or a modest amount.

Graham's essay kind of avoids the point of whether ownership of a vastly appreciating asset is "fair", if a bunch of other people help that asset to appreciate.

[oreally]

But these are still numbers plucked from the air (or as you put it, from the 'future'). I want *tangible, material bases* to start from if any.

Another far more sensible model I've found is slicing pie. Each founder's input % of the pie pre-'bake' is their % of the rewards. And what makes up for one's slice of the pie? The dollar-value you would've earned if you worked somewhere else, times the period of baking. These can be tweaked accordingly to the type of investment put in. IMO, it seems far more grounded compared to say a flat 10%.

[GlibMonkeyDeath]

To quote good old Chester Karass (https://www.amazon.com/Business-Life-Dont-Deserve-Negotiate/...): you get what you negotiate. In an ideal world, people are compensated according to their contributions (and when hired, expected contributions.) This isn't a once-and-done thing, though - compensation (in the form of company ownership) gets adjusted all the time. The flat 10% is just a starting point (a typical CEO level of ownership in a start up, although this number varies quite a lot, due to aforementioned negotiation.) If a CEO screws up badly enough, they might get fired even before their stock vests.

[oreally]

Sure I'd acknowledge the risks taken. Arguably though, there should be some degree of a known benchmark just so people don't get overly taken advantage of.

[groundzeros2015]

Of course people who have more access to money and parents who understand money would be better at earning it.

Why are you presupposing the world is just when EVERY skill and opportunity is distributed non-linearly?

[ceejayoz]

I, too, would win the marathon if you put me at the last mile marker while everyone else starts at the beginning.

Is that skill?

[groundzeros2015]

If your life analogy is a closed system competition you’re going to be disappointed.

Most people with millions do not become billionaires. So yes, there is an exclusive pool of players who can play the game. But within that pool there is incredibly different outcomes.

A better analogy is being born as a child of D1 basketball athletes and then making 100 million in the NBA. Being born into a family with no interest in athletics makes it almost impossible to be a professional athlete. Life isn’t fair. It’s still impressive to become one.

[Alpha3031]

"Life isn't fair" as if we are physically prohibited from making it less unfair...

[groundzeros2015]

Yeah I’m not sure “people gather knowledge and guidance from their families and culture” is on the table, or desirable.

[Alpha3031]

> Yeah I’m not sure “people gather knowledge and guidance from their families and culture” is on the table, or desirable.

Are you missing something like "getting rid of", as in getting rid of that is a way to make things more equal? Because you are aware there are more than one way to make things more equal, right? For knowledge, a well-funded public education system (i.e., not the US apparently) goes a long way, and most people consider that a public good.

Most people concerned about inequality, I would wager, would be more focused on things like nepotism and access, for example I don't have a mum that could get me a meeting with the CEO of IBM to pitch ideas to.

A robust social safety net would probably be helpful if enabling non-already-rich people to take entrepreneurial risk is considered desirable, among other benefits.

[epolanski]

Well the average person, when you exclude real estate, is neither worth nor has a million dollars, that is true.

But this kind of person isn't rare either, even in Italy or Poland where I live I know many multi millionaires.

Some are farmers, some have restaurants/hotels, some work remotely for US tech companies, some were early engineers in startups.

[zozbot234]

One in 500 of them makes themselves a billionaire, the rest have thrown two million dollars down the toilet. It's just a fair bet, there's nothing "rigged" about it.

[didgetmaster]

Just because only 1 in 500 makes it to a billion, does not mean the other 499 are failures. Plenty of startup founders turn a few million into much more.

If someone has an idea that 'only' makes them 20 million, I would call that a great success; even if it takes dozens of years to get there.

[selfsimilar]

yes but again, who has $2M to bet, even at 1/500 odds? You have to be a billionaire to make 500 bets hoping one hits, then you’re back to just being a billionaire again.