Don’t Fall for the Equity Fallacy

Ohhhh the “equity promise”.

An employee toils away at his startup for his below-market pay and that oh so elusive future promise of some equity someday.

My agency has even been getting the equity promise lately, making it IMHO the “it will be great exposure!” of 2018.

*Seriously. Do NOT work for exposure. People value the value you create. Free is a bad start.

Anyway, back to the equity fallacy.

Yes, there are in fact the stories we tell of the equity that turns one person into a millionaire. Much like the fairy tales of our youth, these stories are designed to teach us lessons.

Lessons made by the designer; not by us.

The Startup Unicorn moniker is not arbitrary. They’re elusive, the unicorns. So elusive that we’ve heard of them, but never seen them for ourselves.

So elusive, in fact, that thousands of people in Silicon Valley are working for others right now, dreaming of the fairy dust. All talking about those unicorns. Do any of us actually know a person made rich by the equity promise? Or is it just a “friend of a friend” in the story?

Here is the truth about the equity trap. Equity in a startup (or SMB) is a future promise by an owner that she will someday (a) build her company to a publicly marketable position (of which 95%+ of businesses never do) and then (b) randomly elect to jump through the 6 to 12 month hoops (often never achieved) of taking that business to the public trading market. Should (a) and/or (b) fail to occur, you’re left trying to sell something that someone freely gave away. As if I’ve given you an old, unflattering dress that you must now attempt to sell back to me at original retail value. Or really, any value at all.

Oh, and have we noticed, we’re talking about those public markets. Those ones headed toward the downward-facing dog direction in the coming year/years. Meaning that should you end up with valuable equity after the occurrence of (a) and (b), the public then decides what your equity is actually worth. None of us have a crystal ball, but the trends are trending, well, downward. The bubbles are bursting.

You may be better off getting paid in bitcoin. There’s still a sad little marketplace of believers in that. Stuck with your equity alone, your only believers are 95%+ of the time, the free givers of it.

Because that’s the truth about equity. It’s an exchange of monopoly currency to pay you less.

So stop being told the tales, and wise up, dear startup land employees/collaborators/agencies/fairytale believers.

Here’s a smarter path to aim at. If you don’t mind risk (like really don’t mind it) become an entrepreneur and you can broker off fake currency to others. Or just pay them well. Or both. Your choice.

And if you’re risk averse, well, take your cash, and run.

Either way, invest well in strategies independent of the public markets.

There are the safe ones, the fun ones, and then there are the safe and fun ones. And that space — the alternative structured investment space — is where things get interesting, and people retire early and do silly things like move to Miami Beach. :)

Good luck, and here’s to an amazing 2019.