How is the EV of 1% of change at $1B and 100% chance at $1M the same? The EV is respectively $10M and $1M. I actually think, that if it was the same, they would have different approach towards being a VC.
I was thinking in exponents. Maybe I made a mistake. Let's see.
1B is 10^9. 1M is 10^6. So we need a factor that takes away 3 decimal points. A percent is already taking away 2 decimal points. We need one more. So .1% of 1B is 1M because 9-3=6. I was correct.
I think I see your error: you read .1% as 1%. I applaud you checking the math, even if this time you were wrong.
They are obviously not the same. But, as a founder not coming from a rich family, you may get at best 2 or 3 chances at making a decent business. So now choose: 3 chances of winning 1M at 100% probability vs 3 chances of winning 1B at 1% probability each. Which would you take if your net worth happened to be less than 200K?
Yeah, everyone knows that mean is a bad estimator in presence of outliers or long tailed distributions. The distribution of startup outcomes is exactly that yet people talk about EVs all the time.
simpaticoder|2 years ago
1B is 10^9. 1M is 10^6. So we need a factor that takes away 3 decimal points. A percent is already taking away 2 decimal points. We need one more. So .1% of 1B is 1M because 9-3=6. I was correct.
I think I see your error: you read .1% as 1%. I applaud you checking the math, even if this time you were wrong.
enedil|2 years ago
javcasas|2 years ago
Scea91|2 years ago