If I had buckets and buckets of cash I definitely would invest in early stage companies. I'm not saying that early stage companies are shams or are always deemed to fail or that your equity will always be worthless. The problem in my mind is that as an employee you have little to no ability to diversify your equity as an investment. You are all in with one company for usually 4 years or more (which is about 1/10th of your working life).

So now in regard to gaging the success of your company and your investment... I think it pretty easy to forecast the coming trends in the technology space. For example I think its pretty easy to foresee that the internet is going to eventually eat traditional cable providers as its great at eliminating the middleman. There are going to be some big winners in this space and there are lots of early stage companies looking to ride this. But who out of them is going to be the big winner or few winners of this space? - your guess is as good as mine. As an employee I have to pick one but as a VC or investor I can invest in the general space knowing that somebody in my portfolio is probably going to win this market.

This is the reason I take cash - its not that I don't want to invest in equities, its that I want to have the freedom to put that cash into diversified equities.