Since professional sports is very competitive and rewards “alpha dogs” with all of the money and fame (endorsement deals, max contracts, hottest groupies), players who could have been amazing Robins become mediocre Batmans.
Startups generally give most of the fame to founders, but they give enough of the money to early employees that it seems better to try to be an early employee at a great startup than a cofounder of even a good startup (given what the difference between great and good cashes out to in startups). And so there’s the same issue of “are you optimizing for fame, or money/saving the world?”
Do start-ups distribute according to a power law? In that case they would be somewhere in the middle between sports and saving the world.
In American sports leagues there’s a salary cap that’s the same for each team (flat distribution). Being the second best player on a championship team almost always means less money than being the #1 star on a bad one. Usually athletes only start taking pay cuts to play for contenders towards the end of their careers. If start up earnings are distributed exponentially, it would seem that being #5 on a top 20 start-up is better than #1 on top-200 one. On the other hand, you mentioned other incentives, like fame (decision power, ego..) that would confound the issue. It’s hard to care about “the company” as a goal separate from yourself, otherwise being fired from a company wouldn’t change our opinion of it (for those who haven’t ever been fired: I have, it does). If you’re trying to save the world, the payoff distribution should be discrete: 0 if you fail, [your favorite number here] if you win. If Sauron wins, all hobbits are equally screwed. Once the ring was destroyed, did Frodo get a higher payout than Sam? Not if you derive positive utility from having 10 fingers :)
I think you’ve misunderstood the question. As I understand it, it’s not “is the distribution of startup values a power law” but “do startups distribute their profits to employees according to a power law”.
do startups distribute their profits to employees according to a power law
I hear that ownership is distributed roughly so that founders get 1/f, and early employees get 1/n^2, where f is the number of founders and n is the employee number (counting the first non-founder as employee f+1). (Both are obviously proportional; there’s some constant term in there.)
Startups generally give most of the fame to founders, but they give enough of the money to early employees that it seems better to try to be an early employee at a great startup than a cofounder of even a good startup (given what the difference between great and good cashes out to in startups). And so there’s the same issue of “are you optimizing for fame, or money/saving the world?”
Do start-ups distribute according to a power law? In that case they would be somewhere in the middle between sports and saving the world.
In American sports leagues there’s a salary cap that’s the same for each team (flat distribution). Being the second best player on a championship team almost always means less money than being the #1 star on a bad one. Usually athletes only start taking pay cuts to play for contenders towards the end of their careers. If start up earnings are distributed exponentially, it would seem that being #5 on a top 20 start-up is better than #1 on top-200 one. On the other hand, you mentioned other incentives, like fame (decision power, ego..) that would confound the issue. It’s hard to care about “the company” as a goal separate from yourself, otherwise being fired from a company wouldn’t change our opinion of it (for those who haven’t ever been fired: I have, it does). If you’re trying to save the world, the payoff distribution should be discrete: 0 if you fail, [your favorite number here] if you win. If Sauron wins, all hobbits are equally screwed. Once the ring was destroyed, did Frodo get a higher payout than Sam? Not if you derive positive utility from having 10 fingers :)
Paul Graham thinks so.
I think you’ve misunderstood the question. As I understand it, it’s not “is the distribution of startup values a power law” but “do startups distribute their profits to employees according to a power law”.
I hear that ownership is distributed roughly so that founders get 1/f, and early employees get 1/n^2, where f is the number of founders and n is the employee number (counting the first non-founder as employee f+1). (Both are obviously proportional; there’s some constant term in there.)