Financial Math for Starting Up
David Cummings put up an excellent post yesterday on financial math for startups. He walks through the impact of investing savings versus accruing equity value. The point is that the rewards of startups can be much more valuable than staying in a big company job.
The reason most are not in startups is risk. Failure can wipe out the equity investment. It’s a calculated gamble.
In that area, startups that have valuable IP or product being built have a less severe downside. Failure to them at least involves a firesale of assets to recoup something, often paying back investors. Sometimes founders get something back too. In failure as in success, equity ownership is valuable.
Startups without assets experience no padded fall.
Another thought about financial tradeoffs is that startups sometimes can pay more in salary to their founders than those founders might fetch in a big company. Not often, but sometimes.
What are your thoughts on the financial economics of startups?