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Like most people, extra income gives me diminishing utility, but VCs have an arguably nearly linear utility in income.

Moreover, even if VCs shared my risk function, because VCs hold a diversified portfolio of investments, the same options would be worth more to them than they are to me because they can diversify away downside risk much more effectively than I can.

Only assets whose risk cannot be diversified away carry a risk premium (on average).

Since VCs can and do diversify risk away, there’s no reason to believe that an individual employee who “invests” in startup options by working at a startup is getting a deal because of the risk involved.

And by the way, when you look at historical returns, VC funds don’t appear to outperform other investment classes even though they get to buy a kind of startup equity that has less downside risk than the options you get as a normal employee.

Mayhar got 0.4% of a company when it was valued at M.

By the time the company was worth

Only assets whose risk cannot be diversified away carry a risk premium (on average).

Since VCs can and do diversify risk away, there’s no reason to believe that an individual employee who “invests” in startup options by working at a startup is getting a deal because of the risk involved.

And by the way, when you look at historical returns, VC funds don’t appear to outperform other investment classes even though they get to buy a kind of startup equity that has less downside risk than the options you get as a normal employee.

Mayhar got 0.4% of a company when it was valued at $5M.

By the time the company was worth $1B, Mayhar’s share of the company was diluted by 8x, which made his share of the company worth less than $500k (minus the cost of exercising his options) instead of $4M (minus the cost of exercising his options).

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Only assets whose risk cannot be diversified away carry a risk premium (on average).Since VCs can and do diversify risk away, there’s no reason to believe that an individual employee who “invests” in startup options by working at a startup is getting a deal because of the risk involved.And by the way, when you look at historical returns, VC funds don’t appear to outperform other investment classes even though they get to buy a kind of startup equity that has less downside risk than the options you get as a normal employee.Mayhar got 0.4% of a company when it was valued at $5M.By the time the company was worth $1B, Mayhar’s share of the company was diluted by 8x, which made his share of the company worth less than $500k (minus the cost of exercising his options) instead of $4M (minus the cost of exercising his options).Given that VCs don’t, on average, have outsized returns, this seems to imply that employee options aren’t worth as much as startups often claim.

B, Mayhar’s share of the company was diluted by 8x, which made his share of the company worth less than 0k (minus the cost of exercising his options) instead of M (minus the cost of exercising his options).

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