This is a good comment because it steps through the math. People seem to go to amazing lengths to avoid doing back-of-the-envelope calculations of this sort. Thank you.
I will say that "3% of $100M (and no other outcomes)" would be an extremely pessimistic assessment of a startup, a so-called "risky double."
> I will say that "3% of $100M (and no other outcomes)" would be an extremely pessimistic assessment of a startup, a so-called "risky double."
It's a way to get people to think of expected value. I Could have instead said "$3M expected value". Would you say it's pessimistic to assume that's what a startup will eventually bring in (as cash) to shareholders?
I think it might even be optimistic. There are thousands of 3-people startups that fold giving out $0.
Point well taken. Maybe $3M is a good default value for a "credible" startup nowadays or maybe it's a bit high. Depending on the particular risk factors and assets the startup has (team track records, market, etc.), it could be either a low or a high estimate. The important thing, I think, is that people do that analysis.
I will say that "3% of $100M (and no other outcomes)" would be an extremely pessimistic assessment of a startup, a so-called "risky double."