Interesting. If I spent 20% of my salary on lottery tickets, how good would my chances be of winning vs cashing in my stock at a startup that goes public in which I made 20% less salary? And what would the payout differences be?
More interesting would be to take the delta between a startup salary and a Google salary and invest it in SV real estate. I'd easily bet real estate would net higher returns.
The startup deal is a much better deal than lottery tickets. If you can get a 1% ownership stake and we assume a 10% chance of a 100 million dollar startup, the expected value of that grant is 100k. The expected value of buying lottery tickets with 20% of your salary is close to zero
You should also consider the fact that if you are an early employee in a startup, your future expected payout is at least in part a function of your efforts
You don't get to say that the EV is close to zero in one case, but not in the other. 20k/year (dollars spent) * 1/100mm (odds of winning) * 100mm (jackpot) = 20k/year
If you get a 1% ownership stake for a 20% salary reduction (per year) and you have to stay there for say, 4-5 years in order to get that 100k payout then you're looking at numbers on very similar terms.
I understand why people need to be convinced that their odds are much better in startups than in the lottery. But wanting to believe something to be true and it being true aren't the same thing.
Even given the generous 10% success rate, and 1% equity comp, you need to factor in dilution, time till maturity, whether the company even goes public, and below market salary/benefits.
After that, I'll bet that in the vast majority of cases your maximum upside is significantly less than what you'd have with the standard bigco package.
Edit: not to day there isn't legitimate reason for joining a startup: it's just if the work isn't super interesting, you're getting tricked
Is 10% a reasonable value for that chance? Is 1% a reasonable value for the ownership stake? What about dilution and payout rights?
A reasonable expected value of a lottery ticket is directly computable: jackpot times probability of a winning set. I'm not so sure the same is true for the value of startup employment.
Lottery tickets' jackpot is usually determined in part by sales of tickets for that drawing, and a winning combination wins a divided pot in the case of multiple winners (the probability of which depends again on sales of tickets for that drawing.)
So, no, you can't, at the time of buying a ticket, actually calculate more than a guess of they parameters you cite for determining its expected value.
The published jackpot is a very accurate value to use, and the probability of being the sole winner is a very reasonable probability to use. The actual expected value is not going to differ from that product by enough to matter most of the time.
