It has been drilled into me that the #1 rule of investing is proper diversification. If that is true, startup equity kind of goes against that grain? It's asking to place all the eggs (your productive time) into one basket. That's not much different than a salary except much higher risk without diversification.
Even ycombinator does not fall for that, they invest in thousands of companies and they have a lot less to lose than many employees.
An employee can get diversification in the sense that they can work for multiple companies. It's not at all unusual for someone in SV to get equity in 5 different companies in their career. E.g. one friend of mine first got equity in General Magic, but didn't really hit it big till Nest, decades later. (He did ultimately hit it quite big though.)
There is even a kind of natural balancing mechanism here, in the sense that the earlier you join a company, the more likely it will die quickly and free you to take another shot. So the riskier the equity you opt for, the more rolls of the dice you'll get.
Diversification is the #1 rule of passive investing.
When you're working at a company you'll have access to all sorts of insider information, which you could use to make some informed large bets.
Also note that at a startup "equity" usually really means "options on equity" (unless you're a founder), so you actually can work somewhere for a bit before deciding to take a position that might not be optimal from a diversification perspective.
Here's the way I look at it. Once your 401k or other retirement savings are on track to give you a comfortable retirement, that's like an option -- you are effectively guaranteed a minimum lifestyle. Within this bucket, you should certainly be balancing the expected value and risk "by the book" (diversifying, etc.).
How do you increase the value of an option? Increase the volatility. Continuing to minimize risk is not going to meaningfully change your lifestyle. Your call option already protects you on the downside, so you should try to blow it out on the upside, and take a risk.
You can also view your experience and skills (and the minimum salary it allows you to command in the market) as the same thing. After a certain point, try for something that will meaningfully change your lifestyle. Worst case, you can fall back to that floor salary.
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It has been drilled into me that the #1 rule of investing is proper diversification. If that is true, startup equity kind of goes against that grain? It's asking to place all the eggs (your productive time) into one basket. That's not much different than a salary except much higher risk without diversification.
Even ycombinator does not fall for that, they invest in thousands of companies and they have a lot less to lose than many employees.
An employee can get diversification in the sense that they can work for multiple companies. It's not at all unusual for someone in SV to get equity in 5 different companies in their career. E.g. one friend of mine first got equity in General Magic, but didn't really hit it big till Nest, decades later. (He did ultimately hit it quite big though.)
There is even a kind of natural balancing mechanism here, in the sense that the earlier you join a company, the more likely it will die quickly and free you to take another shot. So the riskier the equity you opt for, the more rolls of the dice you'll get.
Diversification is the #1 rule of passive investing.
When you're working at a company you'll have access to all sorts of insider information, which you could use to make some informed large bets.
Also note that at a startup "equity" usually really means "options on equity" (unless you're a founder), so you actually can work somewhere for a bit before deciding to take a position that might not be optimal from a diversification perspective.
Here's the way I look at it. Once your 401k or other retirement savings are on track to give you a comfortable retirement, that's like an option -- you are effectively guaranteed a minimum lifestyle. Within this bucket, you should certainly be balancing the expected value and risk "by the book" (diversifying, etc.).
How do you increase the value of an option? Increase the volatility. Continuing to minimize risk is not going to meaningfully change your lifestyle. Your call option already protects you on the downside, so you should try to blow it out on the upside, and take a risk.
You can also view your experience and skills (and the minimum salary it allows you to command in the market) as the same thing. After a certain point, try for something that will meaningfully change your lifestyle. Worst case, you can fall back to that floor salary.
This is an argument to invest the value of your equity in a bold bet. It doesn’t say why that bet ought to be on your employer.