Entrepreneurship must involve an element of risk for the founder (i.e. luck). If it didn’t, no one would invest.
Not really. To avoid principal-agent problems, it’s only necessary that the founders share in the returns, not that some part of the returns is nondeterministic/unknowable-a-priori. For instance, if God appeared to you and Marc Andreessen and told you both (truthfully) that Health eFilings was going to be the next Facebook, I’m pretty sure Andreessen would invest, even though the outcome was now 100% knowable-a-priori.
Thank Ben! I agree. This is why I said “Because salaries are much more stable than business values”—if that antecedent doesn’t hold, then the conclusion doesn’t either.
Your post read: “This is important so I’m going to call it out in very clear terms: Entrepreneurship must involve an element of risk for the founder (i.e. luck). If it didn’t, no one would invest.” You weren’t very clear about the fact that this had “salaries are much more [deterministic] than business values” as a possibly-false antecedent.* (It needs to be a possibly false antecedent because that’s exactly what you’re trying to prove in the rest of the essay. To assert it here would beg the question.)
I’m not sure I understand. It’s just empirically true that business values fluctuate a lot more than salaries, so while it’s a possibly false antecedent it just isn’t false. I’m not sure I understand how you think that should be indicated?
You said “salaries are much more stable than business values” above but for your conclusion to go through you need salaries not only to be more stable, but more ex-ante predictable. If business values fluctuate more than salaries, but the fluctuation is ex-ante predictable, then there is no element of luck in founding a startup (and to the extent the ex-ante variance is small, the role of luck is small).
On the other hand, the ex-ante variance being large is exactly what you’re trying to prove in the rest of the post, so it would be circular to assume it there and then use this to support your subsequent arguments in favor of it.
Huh, interesting point! I will have to reread my copy of The Economics of Entrepreneurship; I wonder if they addressed that or just said “adverse selection” and left it at that.
Not really. To avoid principal-agent problems, it’s only necessary that the founders share in the returns, not that some part of the returns is nondeterministic/unknowable-a-priori. For instance, if God appeared to you and Marc Andreessen and told you both (truthfully) that Health eFilings was going to be the next Facebook, I’m pretty sure Andreessen would invest, even though the outcome was now 100% knowable-a-priori.
Thank Ben! I agree. This is why I said “Because salaries are much more stable than business values”—if that antecedent doesn’t hold, then the conclusion doesn’t either.
Your post read: “This is important so I’m going to call it out in very clear terms: Entrepreneurship must involve an element of risk for the founder (i.e. luck). If it didn’t, no one would invest.” You weren’t very clear about the fact that this had “salaries are much more [deterministic] than business values” as a possibly-false antecedent.* (It needs to be a possibly false antecedent because that’s exactly what you’re trying to prove in the rest of the essay. To assert it here would beg the question.)
I’m not sure I understand. It’s just empirically true that business values fluctuate a lot more than salaries, so while it’s a possibly false antecedent it just isn’t false. I’m not sure I understand how you think that should be indicated?
You said “salaries are much more stable than business values” above but for your conclusion to go through you need salaries not only to be more stable, but more ex-ante predictable. If business values fluctuate more than salaries, but the fluctuation is ex-ante predictable, then there is no element of luck in founding a startup (and to the extent the ex-ante variance is small, the role of luck is small).
On the other hand, the ex-ante variance being large is exactly what you’re trying to prove in the rest of the post, so it would be circular to assume it there and then use this to support your subsequent arguments in favor of it.
Huh, interesting point! I will have to reread my copy of The Economics of Entrepreneurship; I wonder if they addressed that or just said “adverse selection” and left it at that.