Let me put it another way. Let's say you were flush with cash for some reason. Would you ever invest in an early stage or startup company? Would you ever invest in any company?
Or, do you believe it is impossible to know, or at least approximate odds of, any company's chance of success?
Let me put it to you yet another way. Which is more likely to go out of business in the next two years, blockbuster or BP? If you say blockbuster, why?
If I had buckets and buckets of cash I definitely would invest in early stage companies. I'm not saying that early stage companies are shams or are always deemed to fail or that your equity will always be worthless. The problem in my mind is that as an employee you have little to no ability to diversify your equity as an investment. You are all in with one company for usually 4 years or more (which is about 1/10th of your working life).
So now in regard to gaging the success of your company and your investment... I think it pretty easy to forecast the coming trends in the technology space. For example I think its pretty easy to foresee that the internet is going to eventually eat traditional cable providers as its great at eliminating the middleman. There are going to be some big winners in this space and there are lots of early stage companies looking to ride this. But who out of them is going to be the big winner or few winners of this space? - your guess is as good as mine. As an employee I have to pick one but as a VC or investor I can invest in the general space knowing that somebody in my portfolio is probably going to win this market.
This is the reason I take cash - its not that I don't want to invest in equities, its that I want to have the freedom to put that cash into diversified equities.
This is very illuminating; thank you for sharing your thoughts on the subject. I can see where you are coming from in regards to diversification, although I take a slightly different angle. If I'm taking 75% of the salary I would in a fortune 500 gig, I already consider myself 3/4s diversified. Plus, I can always work 4 startups in 4 years and just take the first cliff worth of stock, which diversifies even more. Granted, it's no mutual fund, but it's not "I'm locked in to one company for 1/10 of my life and if they go under I'm bankrupt". It's a little less money for as long as I choose to work there in exchange for a potential return on investment.
If I were go back and look for an equity heavy gig, and I don't plan to, I would look at the entire process as an early stage investor. No, I can't invest in 10 or 20 different companies, but I can be selective and increase my odds. Actually, anyone with my current skillset could walk into any startup in the valley and start working the next day. That is something few, if any, angels could do.
Or, do you believe it is impossible to know, or at least approximate odds of, any company's chance of success?
Let me put it to you yet another way. Which is more likely to go out of business in the next two years, blockbuster or BP? If you say blockbuster, why?