Comment by cperciva
19 years ago
Your math is still wrong, because of the non-linear utility of money. If I give up 6% of my company, it costs me 6% of any MONEY I might end up getting, but it doesn't cost me 6% of the UTILITY. If I have a utility-of-money function of sqrt($), you don't have to increase my chance of success by 6.4%; it's enough if you increase my chance of success by 3.2%.
"Outcome" means the output of the utility function, not the input.
Then you're still wrong. I quote from the article: "For example, suppose Y Combinator offers to fund you in return for 6% of your company. In this case, n is .06 and 1/(1 - n) is 1.064. So you should take the deal if you believe we can improve your average outcome by more than 6.4%."
If by "average outcome" you mean "expected value of the utility function", and assuming that my utility-of-money function is sqrt($), I don't need to improve my "average outcome" by more than 6.4% for the deal to be worth accepting; it's enough if I can increase my "average outcome" by 3.2%, since that's how much UTILITY giving up 6% of the MONEY costs me.
Suppose your present hope of future utility from your startup varies linearly with the number of shares. (This is not a radical assumption; essentially all startup shareholders feel this, at least for numbers near that of shares they own.) Suppose you trade 6% of your stock in a deal that will increase your average future utility by 6.4%. You've made a straight trade of hope of future utility for future utility. We don't even have to introduce money.
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If a man is wrong, you don't need to tell him so. Just give it a rest and let others form their own opinions.
Seriously, these issues, and a lot of other issues, are covered in "How to Win Friends and Influence People". Read it. If I could figure out a way to get you to feel like you came up with the idea to read it, I would, but I can't, so just read it.
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Since you're good at math and know something about finance, why not just get a job at a hedge fund?
You'll get rich, and you won't get heckled by a bunch of startup founders.
I know something about economics, but far less about finance. :-)
In any case, finance really doesn't interest me. I routinely tell Wall Street headhunters to stop bothering me because I would rather create something impressive than own something impressive. I'm not in this for the money.
Well, your demeanor is very ingrained into your personality. I doubt you can change it without a lot of effort. Even saying little things like "I routinely tell Wall Street headhunters to stop bothering me..." comes off as arrogant. Do you really not see that? Or do you just not care?
Let's put it this way: How arrogant you are perceived as can be measured by how many times you say "I".
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