[usaar333]

The value of the equity package is 4x higher than the FAANG equivalent equity package (at preferred/market pricing) - that's not the same as saying the shares themselves are worth that.

To sum up the arguments:

* Employment packages allow things a shareholder cannot do (functionally recall their investment), so the high volatility leads to higher package returns.

* FAANG equity grants (RSUs) are taxed at much higher rates

* Expected return is in fact higher on startup equity than FAANG equity (and you generally have no way to invest in the good startups directly aside from working for them).

[robocat]

> Expected return is in fact higher on startup equity than FAANG equity

Expected return is extremely misleading because it depends strongly on extraordinarily few outlier winners. Like when Jeff Bezos walks into a bar and now the average wealth of every person in the bar is over a billion dollars.

The modal return of common shares is $0.

[usaar333]

Why is modal return so important? You'll work more than 2 jobs

[inhumantsar]

doesn't all of this assume that the startup reaches a liquidity event which favors the employee though? or at least that the startup is hot enough that there's a secondary market for those shares?

unless I'm misunderstanding the argument, I dont see how those hypothetical returns could be considered "expected returns". startups which reach a place where employees can profitably cash out seem far too rare to reasonably expect a return at all, never mind a large one.

Since a person works for one company at a time (usually), and it can take 3-5 years or more for a startup to reach a place where the equity is worth something, this argument reads to me like "the returns on a Powerball win are so much higher than your projected lifetime earnings that playing the lottery is a smart financial move".

[usaar333]

It's a probabilistic model. It assumes (correctly) that the low probability of a home run times the home run's valuation is quite large ("expected returns" in the probabilistic sense).

> this argument reads to me like "the returns on a Powerball win are so much higher than your projected lifetime earnings that playing the lottery is a smart financial move".

That's stronger claim than it is making, but yes in a sense it is saying the lottery can be a good move because the expectation is large - that's what VCs do after all.

Note that all the model aims to do is value the equity package. If a public company is offering more than what this model values the startup equity package as (and this often is the case!), it isn't worth it financially to work at that startup.