Growing up around people who lost everything, job and savings, working at Enron, you should take all the money they’ll let you. You are structurally long your company already, because if they struggle you could lose your job. Diversify your wealth away from that concentrated position as much as possible if you’re offered a fair price.
> The interesting discussion is how much you should take off the table if the offer is uncapped.
50% for security, let the remaining 50% run. We can spend countless hours modeling the risk and return delta of various percentages and against non correlated asset classes you might diversify into once liquid, but most of life is luck; you can do everything right and still lose. This makes it easy, imho.
100% correct. Taking 10% away to remove downside risk of the remaining 90% is an absolute no-brainer, especially if it is a meaningful sum of money to you.
Obviously you are guessing probabilities to plug in but they can be based on other exits etc. Someone in the know on startup equity could offer this as a consultation service.
I participate in a personal finance sub-reddit, and there is often a question of whether someone should pay off their mortgage (completely, or make some lump sum payments).
The mathematical answer is that if your interest rate is lower than the expected returns of some kind of portfolio you have, than you'll make more money investing.
But I like to bring up what Morgan Housel, author of the book The Psychology of Money, said on paying down his mortgage:
> It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it.
Cash flow is another facet of paying off your mortgage early, and I think it’s underrated. Eliminating thousands of dollars from your monthly expenses dramatically increases your flexibility. Since most people have “cash / reserve fund” and “retirement investments (do not touch)” as their major financial categories, it optimizes the one you interact with the most. You don’t need to always make the maximum possible to keep a comfortable amount of cash on hand, which gives you more flexibility to take time off between jobs, or tank a layoff, or take that startup job that pays less (but damn if it doesn’t look fun). Personally I recently bought a second apartment adjacent to my first in order to combine them into a 3br. Paying off the first mortgage years ago was the difference between being able to afford the monthly expenses and not.
Obviously you need to consider both net worth and cash flow when making a decision like that, but don’t underrate the difference that improved cash flow makes!
> The mathematical answer is that if your interest rate is lower than the expected returns of some kind of portfolio you have, than you'll make more money investing.
Paying off if possible, but I'd not put everything into paying it down. Pay a chunk of it down for comfort, and put some into emergency reserves with some reasonable level of return that could be accessed in the future in case of need. Early payments don't really matter that much if you have a period of unemployment/underemployment before it's fully paid off.
If you make that big of a decision at the dinner table without excel, it implies that you make the decision without doing the math, which implies you are stupid.
Think of it this way: Given any company in the world to invest that money, do you think it's best invested in your company or some other? Because if there's another one (eg nvidia, apple etc) then you should take the money out and move it into stocks in that one
IMO always take the money. Money to me is like water. If you're dying of thirst, that first glass of water is extremely important, the 100th, not so much. You really only need enough money to do the things you want, raise your kids, and retire. The money after that isn't going to bring nearly as much happiness as that first bit.
1) Making money & keeping money are 2 different skillsets. You've made some $$$, now learn how to keep it.
2) Time is far more valuable than money. If you can take life-changing $$$ off the table in exchange for time, do so. The 2nd $1M buys you a tiny proportion of the benefits that the first $1M did.
3) You have a v. high risk concentrated portfolio that is aligned with your income. That's massive risk.
4) Taking it now buys you time & optionality. Leaving some still buys you blue sky. Best of both worlds.
In my 15 year software engineering career, the most money I could have cashed out was around $110k in crypto space; that was the value my crypto peaked at but it would have required unlocking my tokens which would have lost me my forging position and the $4k per month which came with it... I ended up not selling and earning about $20k to $50k per year for 4 years so it has been a good decision... Also, it was not possible to unlock my tokens without a 1 month delay and token prices were fluctuating wildly... Moreover, due to my public position on the project, and the public nature of Blockchains, my unlocking of tokens would have been seen by community and possibly triggered a project-ending sell-off.
So basically the only time I had the opportunity to theoretically earn $110k, at the peak of my 15 year career after working insanely hard including nights and weekends, was not even feasible in practice and it turned out that I earned more money holding and forging over the following 4 years than I would have gotten for selling.
But damn, when I see some of these corporate 9-to-5'ers sitting on $1 million+ which they got after only 5 years or so and they're not selling because they think they deserve more. It seems insane to me. It's a lot of money, they can sell anytime, probably still keep their job. As they say in crypto, I would dump the shit.
Take the money. These things are 10x bets. You won't be sad that you got 7.5x instead of 10x (which is what happens if you take the 25% of your stake off the table). If you flip it, you'd have 10x instead of 7.5x. It's not meaningful.
Each time you get money you get to deploy that elsewhere. If you have super risk tolerance, push $25k cheques as seed.
"Jim Bennett: I've been up two and a half million dollars.
Frank: What you got on you?
Jim Bennett: Nothing.
Frank: What you put away?
Jim Bennett: Nothing.
Frank: You get up two and a half million dollars, any asshole in the world knows what to do: you get a house with a 25 year roof, an indestructible Jap-economy shitbox, you put the rest into the system at three to five percent to pay your taxes and that's your base, get me? That's your fortress of fucking solitude. That puts you, for the rest of your life, at a level of fuck you. Somebody wants you to do something, fuck you. Boss pisses you off, fuck you! Own your house. Have a couple bucks in the bank. Don't drink. That's all I have to say to anybody on any social level. Did your grandfather take risks?
Jim Bennett: Yes.
Frank: I guarantee he did it from a position of fuck you. A wise man's life is based around fuck you. The United States of America is based on fuck you. You're a king? You have an army? Greatest navy in the history of the world? Fuck you! Blow me. We'll fuck it up ourselves."
I would recommend Taleb's book Skin In the Game for this type of question. The best choices are highly dependent on the individual's preference for risk and whether or not they count their existing stock as "extra" or as "income."
There's a crucial extra factor that isn't in the original article, but ought to be: Money's ability to buy great experiences decreases as you get older. I've seen this with beach vacations, road trips to see a favorite band, fast cars, ski trips, etc.
Seize the moment, friend! What you can do NOW with that 10% slice will never exactly be on your possibilities map again.
I think you're hitting on something that very rarely gets discussed, at least in the US and maybe some other Western societies. I wonder if it's just simple depreciation or compound depreciation (or whatever the opposite of compound interest would be).
Me finding the money to climb Kilimanjaro at 23 is different than me having the money at 40 but worse knees.
Thank you for pointing this out and I hope someone formalizes it more.
This is why I love old tech like my 40 year old car (bmw e30 325is) and analog camera and whatnot. You have way more control because of less external dependencies and simplicity, and the prices are still decent compared to what you'd get now for vastly more money. $70k dogshit unwrenchable SUV or $10k 80's car that works like a dream and is built like a thinkpad? It's so relaxing working with older things. Hearing old peoples stories are wild, like just crossing the border with a 6 pack of beer no passport no nothing and having a good time on the weekend. Now my asshole is getting scanned down to the submillimeter and sitting in a palantir database just so I can go on a vacation.
> Money's ability to buy great experiences decreases as you get older.
Excellent point. You may have just talked me into retiring.
> What you can do NOW with that 10% slice will never exactly be on your possibilities map again.
Maybe not... but "once in a lifetime chances" come around more often than you think. You don't have to take every one right now. (As you get older, options narrow, as you said.)
We were in our 20's when my friend said 'A day in your 20's is worth a year in your 30's, a day in your 30's is worth a year in your 40's, etc...' Now in our 60's we're a little less adamant - every day is worth something.- but it has been a useful perspective.
I took a few months off intentionally in between jobs to hike and camp and hang out with my kids. Now that my kids are older my only regret is that I didn't do it for longer.
I don't agree. How can wasting your money in your twenties and thirties be more valuable than saving for an early retirement. Imagine being able to retire at 40 and do whatever you want. If you weren't stupid, your health should be good enough. Why prolong the time you have to do stupid chores for other people when you can be strategic and opt out as early as possible.
That advice also serves INHO well regarding angel investments and potential secondaries. If you made some x in a short time, take the money and run and leave the risk to institutional VCs who are not investing their own money.
Last week I bought groceries rather than a 50lb bag of Monkey Chow. Objectively the Monkey Chow would have been simpler, cheaper, and maybe even healthier but I kind of enjoy interesting things.
If you would prefer a bowl of Monkey Chow that's fine, but don't begrudge the rest of us our souls.
EDIT - I realize now that not everyone knows that Monkey Chow is a thing:
Its slang that has made its way from queer culture into mainstream. It is not meant to satisfy anyones ego, other than it just has vague positive connotations. It is used in a pretty equivalent way as "take that money, dude".
I believe the complete opposite. If someone is willing to buy your business, no matter the amount, it’s because it’s worth MUCH more than what they’re paying. It’s illogical for them to pay less than its real value. It’s even illogical to think they’d pay exactly what it’s worth. Why would somebody bother buying a company if they were only going to break even?
This assumes risk appetite is the same. For instance, insurance works this way - in expectation you’d pay less yourself, but a 3 sigma event can bankrupt you. You willingly pass on this risk for a price.
The reason anybody is willing to buy and sell anything is because there's no single "real value" of anything. Value is contextual. When the grocery store gives me a cake in exchange for $20, it's because the value of the cake, to them, is less than $20. Conversely, the value of the cake to me is more than $20, otherwise I wouldn't be buying it.
If you sell your business, it's because the value of the business to you is less than the purchase price. Likewise, the value to the buyer is greater than the purchase price.
No, it means they buyer thinks it is worth more than what they are paying. It doesn't mean they are right. It also means that this is the only buyer who thinks the company is worth that much, because if someone was willing to pay more, the company would be selling to them instead.
Ideally startups are about creating value, and making a return on that value, but more and more they look like they are instead selling hype to a series of investors who are trying not to get stuck with the hot potato.
I worked for a company that had a buyout offer for 8 or 9 figures that they turned down. After I left the company ended up collapsing with no exit. It happens frequently.
mason55|4 months ago
The interesting discussion is how much you should take off the table if the offer is uncapped.
collinmcnulty|4 months ago
toomuchtodo|4 months ago
50% for security, let the remaining 50% run. We can spend countless hours modeling the risk and return delta of various percentages and against non correlated asset classes you might diversify into once liquid, but most of life is luck; you can do everything right and still lose. This makes it easy, imho.
(not investing advice, just a rando, n=1)
Edit: noir_lord indeed! Good eye. https://www.youtube.com/watch?v=1TCX90yALsI
vlucas|4 months ago
hshdhdhehd|4 months ago
Obviously you are guessing probabilities to plug in but they can be based on other exits etc. Someone in the know on startup equity could offer this as a consultation service.
throw0101c|4 months ago
The mathematical answer is that if your interest rate is lower than the expected returns of some kind of portfolio you have, than you'll make more money investing.
But I like to bring up what Morgan Housel, author of the book The Psychology of Money, said on paying down his mortgage:
> It just increased our independence, even if it made no sense on paper. So that's another element of debt that I think goes misunderstood. And a lot of that for both of those points is this idea that people don't make financial decisions on a spreadsheet. They don't make them in Excel. They make financial decisions at the dinner table. That's where they're talking about their goals and their own different personalities and their own unique fears and their own unique skills and whatnot. So that's why I kind of push people to say like, it's okay to make financial decisions that don't make any sense on paper if they work for you, if they check the boxes of your psychology and your goals that makes sense for you. And for me, extreme aversion, what looks like an irrational aversion today, and I would say is an irrational aversion to debt, is what works for me and what makes me happy, so that's why I've done it.
* https://rationalreminder.ca/podcast/128
* https://www.youtube.com/watch?v=NSaRb-iFwPA&t=12m48s
jakevoytko|4 months ago
Obviously you need to consider both net worth and cash flow when making a decision like that, but don’t underrate the difference that improved cash flow makes!
gbriel|4 months ago
jstanley|4 months ago
You maximise expected value not by putting everything into the single highest-EV bet, but by sizing your bets according to https://en.wikipedia.org/wiki/Kelly_criterion
fencepost|4 months ago
reverendjames|4 months ago
qoez|4 months ago
eweise|4 months ago
garspin|4 months ago
2) Time is far more valuable than money. If you can take life-changing $$$ off the table in exchange for time, do so. The 2nd $1M buys you a tiny proportion of the benefits that the first $1M did.
3) You have a v. high risk concentrated portfolio that is aligned with your income. That's massive risk.
4) Taking it now buys you time & optionality. Leaving some still buys you blue sky. Best of both worlds.
jongjong|4 months ago
So basically the only time I had the opportunity to theoretically earn $110k, at the peak of my 15 year career after working insanely hard including nights and weekends, was not even feasible in practice and it turned out that I earned more money holding and forging over the following 4 years than I would have gotten for selling.
But damn, when I see some of these corporate 9-to-5'ers sitting on $1 million+ which they got after only 5 years or so and they're not selling because they think they deserve more. It seems insane to me. It's a lot of money, they can sell anytime, probably still keep their job. As they say in crypto, I would dump the shit.
renewiltord|4 months ago
Each time you get money you get to deploy that elsewhere. If you have super risk tolerance, push $25k cheques as seed.
reducesuffering|4 months ago
Frank: What you got on you?
Jim Bennett: Nothing.
Frank: What you put away?
Jim Bennett: Nothing.
Frank: You get up two and a half million dollars, any asshole in the world knows what to do: you get a house with a 25 year roof, an indestructible Jap-economy shitbox, you put the rest into the system at three to five percent to pay your taxes and that's your base, get me? That's your fortress of fucking solitude. That puts you, for the rest of your life, at a level of fuck you. Somebody wants you to do something, fuck you. Boss pisses you off, fuck you! Own your house. Have a couple bucks in the bank. Don't drink. That's all I have to say to anybody on any social level. Did your grandfather take risks?
Jim Bennett: Yes.
Frank: I guarantee he did it from a position of fuck you. A wise man's life is based around fuck you. The United States of America is based on fuck you. You're a king? You have an army? Greatest navy in the history of the world? Fuck you! Blow me. We'll fuck it up ourselves."
https://www.youtube.com/watch?v=XamC7-Pt8N0
scoofy|4 months ago
https://en.wikipedia.org/wiki/Skin_in_the_Game_(book)
GCA10|4 months ago
Seize the moment, friend! What you can do NOW with that 10% slice will never exactly be on your possibilities map again.
jimkleiber|4 months ago
Me finding the money to climb Kilimanjaro at 23 is different than me having the money at 40 but worse knees.
Thank you for pointing this out and I hope someone formalizes it more.
MarcelOlsz|4 months ago
AnimalMuppet|4 months ago
Excellent point. You may have just talked me into retiring.
> What you can do NOW with that 10% slice will never exactly be on your possibilities map again.
Maybe not... but "once in a lifetime chances" come around more often than you think. You don't have to take every one right now. (As you get older, options narrow, as you said.)
pjmorris|4 months ago
fred_is_fred|4 months ago
hshdhdhehd|4 months ago
SoftTalker|4 months ago
jocaal|4 months ago
bryanlarsen|4 months ago
pyrolistical|4 months ago
Then consider it as an offer to buy into the startup at the same dollar amount.
Would you invest?
Not selling is the same as investing in the startup.
This same logic applies to stocks you are holding.
thomas_witt|4 months ago
lostlogin|4 months ago
https://en.wikipedia.org/wiki/TriNet_Zenefits
don_neufeld|4 months ago
BinaryIgor|4 months ago
AnimalMuppet|4 months ago
tidwall|4 months ago
SoftTalker|4 months ago
simonswords82|4 months ago
nonethewiser|4 months ago
[deleted]
mapontosevenths|4 months ago
If you would prefer a bowl of Monkey Chow that's fine, but don't begrudge the rest of us our souls.
EDIT - I realize now that not everyone knows that Monkey Chow is a thing:
https://web.archive.org/web/20230102005704/https://www.angry...
https://www.sharpefarmsupplies.com/livestock/specialty-anima...
apsurd|4 months ago
And now you got me doing it lol. It's just something to do. we're all doing it. chill.
and now you're stuck cuz if you respond to me, well is it jut an inferiority complex, need to be right?
terrelln|4 months ago
shocks|4 months ago
nachox999|4 months ago
arjvik|4 months ago
wat10000|4 months ago
If you sell your business, it's because the value of the business to you is less than the purchase price. Likewise, the value to the buyer is greater than the purchase price.
pavon|4 months ago
Ideally startups are about creating value, and making a return on that value, but more and more they look like they are instead selling hype to a series of investors who are trying not to get stuck with the hot potato.
driverdan|4 months ago
apsurd|4 months ago
not getting it.
unknown|4 months ago
[deleted]
charcircuit|4 months ago
Selling a part of your business can help spread risk to a new investor reducing your own personal risk.
AstroBen|4 months ago
tyre|4 months ago