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Comment by nytesky | Hacker News Reader

0. It’s a lottery ticket. To be realistic. Esp with the DOW down 300 today.

Yeah, I've always considered it a lottery ticket, but I'd love to get a sense of whether I'm holding a $10k or $10mm lottery ticket.

FWIW, I've done the math based on my percentage ownership, expected valuations, timeline to IPO, etc. The big unknown for me is dilution. I don't yet have a good sense of how much dilution I should expect as we move through rounds of funding into an IPO.

Well in current environment I would expect a lot. Uber maybe the canary in coal mine and dry up VC funding unless with more favorable terms.

To clarify, I think I have a good sense of the dilution I should expect, but there's always stories about someone working for years, expecting a big payout after IPO, and ending up with $20k.

When this happens it means that the investments that were made did NOT increase the value of the company. What you want are rounds that increase the value of the company beyond the initial valuation at which it was invested (aka growth)

Dilution is a red herring. It doesn't change the value of your shares (theoretically). What will matter is how the company spends the funds that it raises, and whether it does so in a way that generates a positive or negative return on investment.

Here's how I'm thinking about it with example numbers: I own 0.1% of the company. Based on our market and performance and valuation of peers I expect us to be worth $10b.

With no dilution my stock is worth $10mm (minus taxes, strike price, etc.)

With 10% dilution per round and 4 more funding rounds, it's now worth $6.5mm.

You expect the company to be worth $10b at some point in the future, but the question to be answered is how much you think the company is worth today. Let's say you think the company is worth $10m now, which makes your stock worth $10k. Suppose the company then raises $90m in funding and gives the investors a 90% stake. Now your shares are only 0.01% of the company, and you think "Oh no, I got screwed by dilution!" But the company is now worth $100m, because it has its previous $10m worth of assets plus $90m in cash. So your 0.01% is still worth $10k.

What matters now is how the company spends the money. Hopefully they spend it smartly and the value of the company increases 10x. Now your stock is worth $100k. You didn't get screwed by dilution, you got a $90k bonanza because the company was successful.

The DOW is 30 companies and none of them are unicorn startups, it's related only because it correlates to other indices.

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