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If we follow that reasoning, all early-stage startups are screwed since they don't have any smart people working for them!

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Nah, they're working for so little with the promise of big dividends down the road.

They still have to be okay with the significant probability that they end up having worked below market value. Many of the smart people I know working at startups are perfectly okay with this because they love what they're doing and the potential big dividends is just a really nice bonus.

It would be really hard for me, in the current stage of my career, to justify working for a startup unless I knew the expectation value of the returns aren't at least comparable to traditional jobs. The investment money wouldn't be there either.

I wouldn't really be a smart rational economic actor if I hadn't judged it to be profitable over my other options, though I admit there is more to it than just money.

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