
Forbes 400 Data Shows Paul Graham Is Wrong - apsec112
Someone commented to Paul Graham last month (original thread: http://apps.ycombinator.com/item?id=1320439):<p>"pg, unfortunately for America, in recent years most of the highest paid people (to the tune of hundreds of millions per person) have been financiers. Even fairly successful outcomes in the start-up world, such as Mint.com to take a random example, don't make founders that rich.<p>I suspect if you look at the new inclusions in Forbes 400 list over the past 10 years, that list (of deltas) would be dominated by Finance. This is not a good thing."<p>pg replied:<p>"Instead of assuming this, why don't you check and tell us? It should be pretty easy; historical Forbes 400 data is available online."<p>I decided to go check and tell everyone, and Paul Graham is wrong about the Forbes 400 showing startups having a higher return than Wall Street. According to the Forbes 400 data, between 1999 and 2009:<p>- 211 new people entered the Forbes 400 list during this ten-year period.<p>- Of these, 59 were from finance.<p>- 17 were from technology.<p>I think the record speaks for itself.<p>You can see the raw data at http://www.forbes.com/lists/home.jhtml?passListId=54&#38;passYear=1999&#38;passListType=Person, http://www.forbes.com/lists/2009/54/rich-list-09_The-400-Richest-Americans_FinalWorth.html.
======
startingup
I made that original comment. Thanks for doing the analysis I was too lazy to
do! Your analysis jives with the broader point I was trying to make - in the
past 15 years, finance has been the surest path to riches in America. It is
not just at the level of the Forbes 400. During the real estate bubble, newly
minted mortgage brokers (often coming from other fields such as car sales,
they found selling debt far more lucrative) were taking home $0.5 million -
and not just a few of them. I have had acquaintances in Goldman, at fairly low
level in the org chart, who have been taking home similar sums in bonuses
every year. I know Unix systems administrators in Wall Street who take home
~$300K/year - and these guys are generally very low in the Wall Street totem
pole.

It has been the age of the financier for a while now. No, this is not
capitalism at work; it is Federal Reserve policy. It allowed specially
privileged entities to lever up (30x leverage in case of investment banks like
Goldman or Morgan Stanley, 10x in case of hedge funds), allow them to
speculate with easy money, and have them pay out huge bonuses in case of
investment banks or huge carried profit in case of hedgies ... and finally
bail them out when their leverage blew up on them, only to have them start
speculating all over again.

~~~
tmsh
The thing is, however, that the times are different now. Look at a chart of
the US 10 year note from the 60's to the present. It peaked in 1981.

I parse that history as -- the world was coming off of a golden era in
productivity, wealth and economic stability. It would make sense for people
from B school to make a lot of money if they started getting their chops on
Wall Street, etc.

But now it's different. I think that the 10 year note has begun its steady
rise again, finally (biggest acceleration since the late 60's and early 80's).
But in this economic climate, nimbler business arrangements surely are more
viable and better training for future business leaders.

It's just basic math -- in a 4% environment, things like SpaceX and other
lighter economic models will be successful. In a 15% environment, financing
itself is more useful, and, with synergy and everything, on average produces
more massive individual personal wealth.

The constraints that faced those currently on the Fortune 400 list (which is
really some sort of integral of the past 30 years -- as these are people at
the peak of their careers) are different from those who will be on the Fortune
400 list in 2030.

(N.B. I made all this s* up having looked at an all-time 10 year note chart
earlier tonight. But it's an idea.)

ETA: Although it's a bit of a project. I think it would be interesting to
compile the 100 wealthiest people in the world over the past 100 years. I have
a feeling that certain periods in time would've produced clusters of
financiers (JP Morgans, etc.), whereas other times would produce clusters of
startup founders. Would be interesting to compare them to different economic
indices, etc. Then the thing would be to determine if our own present economic
climate resembles others periods -- and what that means to the different types
of fields you should, on average, go into to maximize personal wealth (if
that's something that you're into). Or at least be aware of it.

------
JacobAldridge
There's a fundamental difference between 'there are more financiers than
start-up founders in the Fortune 400' and 'a greater percentage of financiers
in America make the Fortune 400 than start-up founders in America'.

Using extreme example to make my point, if 0.001% of all 'financiers' made the
Fortune 400 and 5.000% of all start-up founders did, no-one would claim that
211 v 59 means much because of the asymmetrical volume of the candidate pools.

The percentages won't be that stark, of course. Are there 4 times as many
financiers as start-up founder? I would suggest more (many, many more) which
would indicate that being a start-up founder makes it more likely to hit that
measure of financial success than being a financier, based on those figures.

I make no comment about the relevance of this to the original discussion and
pg's right or wrongness, which I was not a part of.

~~~
nostrademons
That depends a lot what you consider a startup founder. If you consider a
startup founder as anyone who quits their day job to start a business, I'd bet
that there are many more startup founders than financiers. If you consider
only people in the technology field, the numbers drop significantly. If you
consider people in the technology field who start a project that may become a
business, but don't restrict to those who quit their day jobs, the numbers
balloon again.

I could look up these numbers, but they really don't tell you all that much.
If you're a Xoogler with venture capital in Silicon Valley, your odds are much
better than if you're a college dropout in Indiana who's playing around with
Rails in his free time. It's silly to lump both "founders" into the same
category.

~~~
kiiski
"- 17 were from technology." Seems like we only consider technology startups.

~~~
nostrademons
Then do you consider only venture-funded technology startups? After all, most
of the folks on the technology list got there through venture funding. Do you
consider only startups where the founders quit their day job? Do you consider
ones where the founders eventually quit their day jobs, but not until their
startup had traction in the marketplace? (That would include Apple and EBay,
FWIW.) Do you consider any technology project that may become a startup?

The original thread-starter wants to know the chances of making the Forbes
400, _given_ that he becomes a tech entrepreneur or financier. He rightly
points out that this depends a lot on the denominator - but the denominator
depends a lot on how you slice the categories of "tech entrepreneur" and
"financier". There are a large number of factors besides entrepreneurship that
alter the odds, and many of them alter the odds a lot more than the mere fact
that you've started a company.

------
mmaunder
I used to work for CSFB (now Credit Suisse) in London's Canary Wharf. It's the
most I've earned in my entire career.

Unless you've worked for an investment bank you have no idea how much money
they have. It's like a giant gulf-of-mexico-style money gusher that doesn't
quit.

How do they make it? CSFB flies on the bleeding edge of what's legal and
always have. I was there when Frank Quattrone was involved in the IPO of VA
Linux. The share allocation resulted in the US vs Quattrone lawsuit. Imagine
you facilitate an IPO and you get to hand out shares at $80 a piece to your
buddies on and the first day it pops up to $300/share and you can sell - right
then. <http://bit.ly/cBMdqb>

I was also there when James Archer, Jeffrey Archer's son was found guilty of
manipulating the swedish stock exchange and banned for life.
<http://news.bbc.co.uk/2/hi/business/1459638.stm>

In investment banks there is what's known as the Chinese Wall. It separates
investment banking from the brokerage divisions to prevent conflicts of
interest. Imagine you have a bunch of guys buying and selling stock for the
bank's account and another group of guys recommending to customers which stock
to buy and sell. They're all in the same building, using the same elevators,
the same mens rooms and the same lunch hall. Quick entrepreneurial quiz:
Anyone see a business model there?

They take their licks though. I was there when the LTCM fund collapsed and
they lost $600M. Also when the Russian economy collapsed and they lost another
$600M. Layoffs? Nah - business as usual.

If you're a developer or ops guy and get tired of startups, I strongly
recommend going to work for an investment bank. It's very very hard to get
your first job - you're going to have to network your ass off or have a
seriously hot resume - probably both. But once you're in, provided you're good
at what you do, it's very easy to move between banks and promote yourself into
better jobs in other banks or divisions.

So what the f __k am I doing running a startup? Good question. I ask myself
that sometimes. When you look at the opportunity cost from the "I could be in
an investment bank" perspective it is scary. I don't have some magic answer or
a bunch of bullet points. I guess what draws me to it is the fact that I own
my own business. It's also completely honest. Your success is your own and so
is your failure. Working in banking feels like cheating. Perhaps it is. But it
pays cash and lots of it.

~~~
seldo
It's worth pointing out that this is really only a viable career option if you
are a straight, white, anglo-saxon male ready to work long hours, drink hard,
and put up with a machismo-dominated culture. The financial sector and
investment banking in particular, even in their tech departments, have the
kind of corporate culture that sends me running.

~~~
VictorHo
Having worked at Goldman Sachs in FIG investment banking, and having very
close friends at virtually every bulge bracket as well as 8 of the 10 largest
Private Equity firms, I can attest that this is completely false. If there is
one industry that bleeds meritocracy (outside of entrepreneurship, which I
think is a clear first), it is finance. You are definitely right about the
long hours - you must be intelligent and be willing to work extremely hard,
and you must also be willing to put up with a great deal of tedium and grunt
work at almost all levels. However, the one thing that you don't have to be is
white. Minorities are vastly overrepresented, and while I have not done a hard
calculation if you take Asians and Indians as a percentage of total front
office workers, I would not be surprised if it were near 30%. Include Jews and
it's even higher. I currently work at McKinsey & Co in the Corporate Finance
practice in New York, and the office as a whole (of 500 front office
consultants) is probably 40% Asian or Indian.

That said, there are many downsides to finance as well and there are many
reasons I am forgoing a $400k+ paycheck in PE to move back to SF to start a
company where I am paid $0 and will have to live off of a ramen diet. The fact
that I am not straight, white, and anglo-saxon however does not play a factor
at all (and in fact there are running jokes at many banks and top tier
consultancies that the above description puts you in the minority).

~~~
ig1
Agreed. I'm British Asian and work on the the trading floor of a mid-tier bank
in London, race is completely a non-issue. Diversity is huge both on the
business and tech side.

On the IBD side (M&A/CF) there's probably less diversity, but again it's not a
huge issue. In IBD the division is more down to class than to race.

The trading floor is still male dominated though, although there are a fair
number of female quants in the industry.

------
leelin
Can we explain this by saying many hedge funds are negatively correlated,
along with survivor bias?

This is a huge simplification, but consider for every four hedge fund
managers, one goes long the market, another short the market, another long
volatility and another short volatility.

No matter what it's very likely one or two out of those four perform very well
over one year. Start with enough hedge funds and throw on enough leverage and
after a few years, there are bound to be some huge outlier-sized winners and
many other blowups. It's like a big roulette table, but every possible outcome
has someone betting big on it.

Contrast that with startups, where almost every startup has exposure to market
beta (either in receiving funding or finding an acquirer). In addition, it's
quite possible every music startup in the industry goes bust, or every PDA-
maker startup, or every online poker startup, etc. The roulette wheel has an
infinite number of bets, and can easily land so that no one wins.

Edit: I'm very convinced there are people with extraordinary skill in
investing and/or in founding startups. I'm only suggesting how the Forbes 400
list could still exist if it was pure luck and no skill.

~~~
nostrademons
Startups have the same phenomenom: for every product that people are _not_
buying, there's a substitute that they're buying instead. Either that or
consumers are stuffing their money under the mattress, but we know (from the
savings rate data) that this isn't happening.

In some ways, there ought to be _more_ variation with startups, because
consumers will tend to pile onto the market leader because they're seen as
reliable, which starves other firms in the industry and shifts resources onto
a few big winners. The information cascades among consumer businesses can be
much bigger than the information cascades among financial firms.

~~~
leelin
That accounts from some ways startups can be negatively correlated, but for
the purposes of billionaire founders making the Forbes 400, I still say they
are all hugely correlated to market conditions that enable crucial funding
rounds, M&A events, and IPO events.

Also, if I think startup X sucks, it's not that obvious how I can bet against
them and get rich on their dismal failure. But if I think hedge fund Y is
doing stupid things, I can take the other side of their trades, and one of us
will wind up rich.

~~~
nostrademons
"Also, if I think startup X sucks, it's not that obvious how I can bet against
them and get rich on their dismal failure."

Compete with them. If you think startup X sucks, then enter the same market,
gunning for the same customers, but serve them better.

It's harder to do this than for a financier to short a stock, but that's
because everything in finance is higher leverage than in business. The goal of
an entrepreneur is to do things better than established businesses; the goal
of a financier is to _predict_ which firms will do things better, and then
divert capital to them. The actual effort involved in finance is simply a
decision, but that decision needs a lot of information to be correct more
often than it's wrong. (None of which changes the relative likelihood of
wealth concentrating at the top of one of these fields.)

~~~
leelin
I don't follow. Say a startup comes along and I think the entire idea, space,
and sector is doomed to failure. The whole market is a no-go. I can't get rich
off the ones I decide will be failures, and it's possible for an entire sector
to fail together in a correlated way. Say, Gmail crushes all web-based email
startups, or iPhone crushes all startups based on the available 2007-era
mobile platforms.

At least in financial derivatives trading, there is a somewhat zero-sum aspect
to who is winning and losing money. Every dismal derivatives trade should have
some winners on the other side.

~~~
rbanffy
> Every dismal derivatives trade should have some winners on the other side.

Unless the market collapses. In that case, all you have are losers.

OTOH, markets collapse not because resources are destroyed, but because
investors realize they never existed.

~~~
jarek
> Unless the market collapses. In that case, all you have are losers.

And people who were short.

------
hooande
People can interpret a data set in so many ways. I don't know which people you
put into the "technology" and "finance" categories. I just went with the
people that Forbes put into the categories of "Finance" or "Investment" vs the
people that they put into the categories of "Internet" or "Software". I ran
some numbers on the data they provided and here's what I found:

Finance/Investments:

    
    
      Total People: 81
      Avg Net Worth: 181.77
      Avg Age: 62.32
    

Internet/Software:

    
    
      Total People: 48
      Avg Net Worth: 321.47
      Avg Age: 45.43
    

The net worth is in millions I guess, but the numbers don't seem to jive (Bill
Gates is worth $85B??)

It seems that technology > finance, in terms of net worth and number of years
required to achieve that worth. While a financier may be more likely to make
the list, the expected value for a tech entrepreneur seems to be much higher.

~~~
apsec112
Did you look at just the _new_ rich (the people who have gotten rich over the
past ten years), or all the rich? If the latter, you're including a lot of
dot-com people who wouldn't have gotten nearly as rich if it weren't for the
bubble.

~~~
hooande
I'd have to normalize the data for all kinds of bubbles in a variety of
markets, not just the dotcom bubble. Plus, I couldn't see how to determine who
was new rich based on the data.

In the light of morning, I'd like to amend my statement to "the expected value
for a tech entrepreneur seems to be _slightly_ higher", based on the
definition of an expected value:

    
    
      81 / 400 x 181.77 = 36.80
      48 / 400 x 321.47 = 38.57
    

Given that the odds of making the list in finance are higher, it's still a
better bet to start a technology startup.

------
grasshoper
This is a false dichotomy. The financiers who made this list were all
entrepreneurs. James Simons, John Paulson, Steve Schwarzman, David E. Shaw,
etc all successfully founded companies. Their companies just happen to be
investment firms. The fact that more founders of financial startups have made
this list in past decade than founders of tech startups speaks to the
dominance of the investment industry in recent years. It says nothing about
finance vs start-ups. The Forbes list will always be dominated by those who
took an entrepreneurial risk and had that bet pay off. Nobody, finance sector
or otherwise, makes this list by being an employee. Not even top employees can
reach this level. Jamie Dimon, Lloyd Blankfein, John Mack are not on here.

Now for more modest monetary goals, there's still no better field than
finance. The only path to the Forbes list is through entrepreneurship, but
finance opens up additional paths to millionairehood. Make it to Managing
Director at an investment bank? Become a successful trader? You'll get
7-figures in yearly comp. Wanna do that in the tech world? You'll need a
successful exit.

~~~
apsec112
"Nobody, finance sector or otherwise, makes this list by being an employee.
Not even top employees can reach this level."

That is indeed true, but "start-up" has specific technology connotations in
the minds of most people here.

------
pge
The original discussion was about expected value, not maximum value. I
continue to believe that the expected value of finance exceeds that of
startups, but the answer to that is not in the Forbes 400, which shows those
who are at the extreme. To make an analogy, the guy that just won the
Powerball lottery is far richer than all the doctors in his state, but that
doesnt mean the expected value of playing the lottery is higher than being a
doctor. Salaries in finance tend to start at close to $100K for first year
employees coming out of undergrad. A solid performer can get up to $300K/year
in 5 years. The difference between this kind of career path and startup is
that the finance employee has much more control over his compensation - if
you're smart and willing to work hard, the salary rises in a predictable
fashion. An entrepreneur can make a lot more if he is successful, but many of
the factors that determine success are out his control. The entrepreneurs win
much bigger than financiers (so the entrepreneuers should be much better
represented in the Forbes 400), but the expected value of being a financier is
greater (no data available to prove that).

------
devin
The real question is: Do you want to be a financier or a founder? Personally,
forget finance. Some of us like to invent stuff, and by stuff I don't mean
phony securities.

------
pg
Interesting. Who were the 59 from finance?

~~~
apsec112
I didn't write them all down because that would have taken another hour and
it's 11 PM Bay time on a Friday, but here are a few:

<http://en.wikipedia.org/wiki/Ray_Dalio>

<http://en.wikipedia.org/wiki/James_Simons>

<http://en.wikipedia.org/wiki/Steve_Schwarzman>

<http://en.wikipedia.org/wiki/John_Paulson>

<http://en.wikipedia.org/wiki/Daniel_Och>

<http://en.wikipedia.org/wiki/David_Shaw>

<http://en.wikipedia.org/wiki/Steven_A._Cohen>

<http://en.wikipedia.org/wiki/Kenneth_C._Griffin>

If you're curious as to whether I included any specific people please feel
free to ask.

~~~
pg
I'm curious what your test was for deciding whether someone was in finance.

~~~
apsec112
Here are the industries I considered to be "finance":

\- Hedge funds and other money management

\- Private equity

\- Investment banking

\- Leveraged buyouts

\- Proprietary trading

\- Traditional (retail) banking and credit cards

I did _not_ consider heirs with investments to have gotten their money in
finance, unless they increased their original sum ten-fold or more (in real
dollars). I also did not consider real estate investment/speculation to be
finance.

~~~
pg
Sounds reasonable. But when you have time it would be useful to see the actual
lists of the people you put in each category.

~~~
ynniv
Since the ecosystem of non-bootstrapped startups combine founders and
financiers, where do you draw the line? VC firms seem squarely in the
financier camp, and founders who do not contribute capital are not, but angels
and incubators are more difficult. An honest classification attempt would
attribute some of their equity to capital and some to work contribution, but
even when there is currently a stable valuation available to calculate the
capital contribution to an equity grant, the numbers are often uncertain
guesses.

~~~
ynniv
apsec112: I see your reply, but it is [dead]

 _I actually counted VCs as having made their money from technology rather
than finance_

You know my next question then: what is the financier/founder ratio if you
consider VCs to be financiers?

------
nearestneighbor
> "Instead of assuming this, why don't you check and tell us? It should be
> pretty easy; historical Forbes 400 data is available online."

Well, he wasn't WRONG. He just advised you to make a stronger argument, since
the data is easily available.

------
nazgulnarsil
outliers hold no interest for me. what percentage of people who tried to
become successful financiers made it vs what percentage of tech entrepreneurs
started a successful company?

~~~
apsec112
Difficult to say exactly. Both are definitely high-risk industries. The key
difference is probably the timespan over which you make your money. A
moderately successful entrepreneur might work hard for five years, sell his
company for $20M, and get $4M of that. A moderately successful financier might
work hard for thirty years, and make $500K - $2M every year that he works.
Essentially, successful financiers tend to be older (50s and up) while
successful entrepreneurs tend to be younger.

~~~
paraschopra
> Essentially, successful financiers tend to be older (50s and up) while
> successful entrepreneurs tend to be younger.

I think this data can also answer the question. Has any one done any
calculations on this front?

------
alexyim
Original thread:

<http://apps.ycombinator.com/item?id=1320439>

Raw data:

[http://www.forbes.com/lists/home.jhtml?passListId=54&pas...](http://www.forbes.com/lists/home.jhtml?passListId=54&passYear=1999&passListType=Person)

[http://www.forbes.com/lists/2009/54/rich-
list-09_The-400-Ric...](http://www.forbes.com/lists/2009/54/rich-
list-09_The-400-Richest-Americans_FinalWorth.html)

------
jasonlbaptiste
The smart middle ground would be applying good technology/product
entrepreneurship to the finance industry. They clearly have the money to play
with and what may seem simple to us is wizardry to them. Someone pointed out
an opportunity to me yesterday re: illiquid real estate assets. My mind is
blown. I'm sitting here fucking around trying to get a 300k angel round, and
these guys are trying to get rid of 300mil. there's a lot of money to be had
out there combining tech/product know-how with boring industries. Money is
usually found in the unsexy places.

------
Towle_
I don't understand why the two categories are being contrasted against each
other as though one cannot be both. Wouldn't many highly successful founders
later become financiers as well? If the root of this discussion is indeed
which paths any given individual might take to achieve much greater wealth--
and not some sort of "financing vs. founding" contest-- then the founder role
should nonetheless receive greater attention in all/most aspects. For most,
the financier role will only ever be open if they are founders first.

~~~
_delirium
It appears that the "finance" category often _is_ totally separate though, and
that you can break into it without doing something like tech first. The people
being classified as "financiers" on the list never started a non-finance
company--- folks like George Soros made their money 100% in finance. They made
their initial money moving up the ranks at investment banks, playing arbitrage
strategies, pulling in bonuses from big deals, etc.

------
rbanffy
It may be stating the obvious, but if you are founding a (tech) startup for
the money, you are doing it for the wrong reason.

~~~
jteo
While this is true to a certain extent, one must consider the opportunity cost
of a startup. In this case: how much I am giving up, assuming I could have
gone and worked in finance?

------
rameshnid
A man of finance measures his success on a single metric - wealth accumulated.
A techie founder on the other hand has many takeaways - social respect, geek
goodness, making the future instead of guessing it, money in some cases.

I think if economic wealth is used as a measure instead of monetary wealth, pg
would be spot on. What say?

------
jussij
You said:

> 211 new people entered the Forbes 400 list during this ten-year period. > Of
> these, 59 were from finance. > 17 were from technology.

He said: 'that list (of deltas) would be dominated by Finance'

So how exactly was he wrong wrong?

~~~
jarek
"that list (of deltas) would be dominated by Finance" was said by startingup.

pg said, in response to "the expected value (in money) of going to Wall Street
is still quite a bit higher than that of a startup.", "in the Forbes 400 [...]
at least that is not the case."

------
thunk
> _I think the record speaks for itself._

There's something about the way you phrased this that makes me think you were
gunning for pg. It would be nice if you included the complete breakdown, as
well as your criteria for determining tech vs. finance. Since you had to
manually go through the entire list, I can't imagine it would have been
difficult to record your results.

~~~
apsec112
"There's something about the way you phrased this that makes me think you were
gunning for pg."

I was responding to him specifically, yes.

"Since you had to manually go through the entire list, I can't imagine it
would have been difficult to record your results."

Not actually difficult, just time-consuming (I did it by having the two
different lists, sorted by name for easy comparability, in two adjacent
browser windows).

~~~
thunk
I'm not saying you're wrong, just that it's a little disingenuous to publicly
call someone out without providing your methods or your results.

