the bankroll of the typical person accepting startup equity in place of cash, the Kelly Criterion may indicate that startups should usually not be more than hobbies for "normal" (non-rich, non-certainly-immortal, declining-utility-in-dollars) humans.

I'm not too clear how we would apply KC to startups (as opposed to specific contracts in prediction markets).

Let's see... Somewhere Paul Graham says that >90% of startups will fail, so our Kelly odds are 9:1. What's the return on a won bet? Well, the recent Kaufmann Foundation report on VC funds puts the single best VC funds at an overall return of ~8x but that's not enough because that implies that we may not even break even if we lost ~9 investments for every 1 investment returning 8! (receiving 8 back on a 9:1 bet)

If startups are negative expected value, the KC is not useful: it presumes bets are positive expected value and the question is what fraction to bet at any time to avoid ruin. I suppose that treating them as lottery tickets and assuming you are risk-seeking might make it useful, but I don't know how to do that.

Maybe time-value will help. Thinking of a LWer I know, he received the rough equivalent of a year's salary when the startup 'won'. But the startup itself took years and naturally wasn't paying the salary a big competitor might, so it's not obvious that he was better off in the end, which brings us back to the expected value question.

Yeah, I dunno.