You Can’t Exactly Buy Stock in Athletes

One thing that sometimes happens is that a small startup needs some money to keep the lights on, so it finds an investor who is willing to put in $100,000 but wants 10% of the company in exchange. The startup says yes, because (1) without the $100,000 the lights will go off and there won’t be a startup anymore, and (2) $100,000 for 10% of the company — a $1 million valuation — seems pretty generous, given that the startup has no revenue and can’t keep the lights on. The investor is putting up real money that the startup needs, and getting back nothing but a share of the startup’s very uncertain future success.

And then the startup invents some fundamental world-changing thing like cold fusion or AI or the “like” button, and it becomes a $100 billion company, and the investor’s $100,000 investment is worth $10 billion. And then: