I keep seeing headlines about 22-year-old billionaires. The youngest self-made tech billionaires in history, apparently. Mercor’s three cofounders just hit a $10 billion valuation after raising $350 million.

Good for them. Genuinely. But I openly question: are they actually billionaires?

The answer depends on whether you think paper wealth counts. And I’m confused about whether it should.

The $2.7 Trillion Question

Here’s what got me thinking about this. In 2025, AI-related investments constituted 51% of global venture capital deal value, up from 37% in 2024 and 26% in 2023. Nearly two-thirds of deal value in the U.S. went to AI and Machine Learning startups in the first half of 2025.

That’s a lot of paper wealth being created.

But here’s the uncomfortable truth: 95% of corporate generative AI projects have failed to generate meaningful financial returns, according to MIT researchers. OpenAI, valued at $500 billion, expects to burn through $115 billion of cash through 2029. They’re the world’s most valuable company never to have turned a profit.

So what exactly is a “billionaire” when the billions exist only on paper, contingent on future events that may never happen?

My Understanding of How Paper Wealth Actually Works

Let me walk you through how I think this works, because it’s important to understand the mechanics.

When a startup raises money, investors agree to pay a certain price per share. Let’s say you own 10% of a company, and an investor just paid $100 million for 10% of the company. Congratulations! On paper, you’re worth $100 million.

But here’s what that really means:

You’re only worth $100 million because someone agreed to pay that price. Not because you have $100 million. Not because you can sell your shares for $100 million. You’re worth that amount in the same way that my house is “worth” whatever Zillow says it’s worth - which is to say, it’s worth exactly nothing until someone actually hands me money for it.

The difference is that I could probably sell my house within a few months if I really needed to. Your startup equity? That’s locked up until a “liquidity event” - an IPO or acquisition. And most of the time, that event either never happens or happens at a price that makes your shares worth far less than you thought.

The Difference Between Preferred and Common Stock

Here’s where it gets even messier. When VCs invest, they buy preferred stock. You, as a founder or employee, own common stock. These are not the same thing.

Preferred stock comes with protections. If the company sells for less than the total amount raised, preferred stockholders get their money back first. Common stockholders get whatever’s left over, which is often nothing.

Let me give you a real example. Say a company raises $200 million total across multiple rounds. It gets acquired for $150 million. The preferred stockholders might have liquidation preferences that let them recoup their $200 million investment first (through various terms like participating preferred). Common stockholders? They get zero.

This happens all the time. Companies sell for millions and employees walk away with nothing.

The Valuation Methods That Create Paper Billions

How do companies even arrive at these astronomical valuations? There are several methods, and most of them are… creative.

The VC Method focuses on potential return on investment. It asks: “If this company succeeds wildly, what could it be worth in 5-7 years?” Then it works backward to justify today’s valuation. Notice the key word: if.

The Scorecard Method benchmarks against similar companies. But what happens when all the comparable companies are also overvalued? You get a bubble.

The Berkus Method assigns dollar values to things like “the team’s experience” and “market potential.” These are important factors, but assigning concrete dollar values to abstract concepts is an art, not a science.

For pre-revenue startups (and many of these AI unicorns are pre-revenue), valuations are based on factors like team experience and market potential rather than concrete financial metrics. Translation: it’s mostly guesswork and negotiation.

Is This Another Bubble?

Let’s talk about the elephant in the room. The Bank of England has explicitly warned of an increased risk of a “sharp market correction”, particularly for AI-focused tech companies. The International Monetary Fund said current stock valuations are “heading toward levels we saw during the bullishness about the internet 25 years ago.”

Look at the numbers. Nvidia trades at over 50x trailing earnings, though its forward P/E is lower at around 30x based on optimistic growth projections. Palantir has a P/E ratio over 520. CrowdStrike’s adjusted P/E is around 148. Many AI startups are seeking valuations far above their meager annual recurring revenue.

Even Sam Altman, OpenAI’s CEO, said in August: “Are we in a phase where investors as a whole are overexcited about AI? In my opinion, yes.”

When the guy running the most valuable (?) AI company in the world says we’re in a bubble, maybe we should listen.

What This Means for Your Stock Options

If you work at a startup, you probably have stock options. Here’s what you need to know: almost all employee stock options in startups end up being worthless.

The reasons are straightforward:

  1. Most startups fail. 99% of tech startups never hit $1 million in revenue in a calendar year.

  2. Few successful exits. Even among funded companies, exits are rare. And when they do happen, they often don’t return enough to make employee options valuable.

  3. Capital structure. Even if the company sells for millions, the preferred stockholders get paid first. If the sale price doesn’t substantially exceed the capital raised, your common stock options are worth zero.

  4. Illiquidity. You can’t sell until there’s a liquidity event. You might be a “paper millionaire” for years before finding out your options are worthless.

This is why I’ve always treated equity compensation as a lottery ticket. It might pay off big. But I don’t make financial decisions based on lottery tickets.

Execution vs. Pitch Decks (Or Am I Wrong About This?)

Here’s where I get stuck. I’m building a product right now. My approach is straightforward: bring something to market, show that it delivers continued value for customers, iterate based on feedback, and build a sustainable business.

That feels right to me. But I keep asking myself: is that actually the path to wealth creation? Or am I just being stubborn?

Those 22-year-old billionaires at Mercor - are they following the same path? Did they build something that customers love and pay for? Or did they build something investors love and fund?

I genuinely don’t know.

What I do know is that we’ve created a system where the answers to those questions produce wildly different outcomes. Companies can raise hundreds of millions on PowerPoint presentations and TAM calculations. Meanwhile, profitable SaaS companies growing 40% year-over-year struggle to raise a Series A at reasonable terms.

I’ve seen pitch decks that would make WeWork blush. Beautiful slides about “revolutionizing” industries, with no clear path to profitability and burn rates that would terrify any sane CFO. And they raise at billion-dollar valuations.

So maybe I’m thinking about this wrong. Maybe wealth is built on pitch decks and stories about the future. Maybe execution matters less than I think it does. Maybe that 99% failure rate is just the cost of doing business, and the 1% that succeeds makes the whole system work.

But here’s what keeps nagging at me: what happens to those billions when you’re part of the 99%?

If Mercor is one of the companies that fails - and statistically, that’s the most likely outcome - those three 22-year-olds won’t be billionaires. They’ll be founders of a failed startup who briefly had impressive paperwork.

Their billions evaporate. The preferred stockholders get whatever scraps remain. The common stock goes to zero.

Maybe that’s fine. Maybe the game is to ride the wave while you can, use the credibility from one big raise to start the next thing, and eventually one of them hits. That’s certainly how some successful founders have operated.

But I can’t shake the feeling that this isn’t wealth creation. It’s wealth illusion. And when the illusion ends, someone is left holding the bag.

I want to believe that building real value for real customers is the right path. That sustainable revenue and profitability matter more than story-telling. But the current market is telling me something different.

So I’m skeptical. Not of the people raising these rounds - they’re playing the game as it exists. I’m skeptical of the game itself.

When Paper Becomes Real Money

So when does paper wealth become real wealth? There are three main paths:

IPO. This is the dream scenario. Your company goes public, and suddenly your shares are liquid. You can sell them on the open market. But IPOs are rare, expensive, and require actual profitability (or at least a credible path to it). Even then, you’ll likely have a lockup period of 6-12 months before you can sell.

Acquisition. This can work, but remember the capital structure issues I mentioned. Unless the acquisition price is substantially higher than the total capital raised, common stockholders often get little or nothing.

Secondary markets. Some companies allow employees to sell shares before a liquidity event. But these sales typically happen at a significant discount to the last round’s valuation, there’s limited access, and they require company approval.

The hard truth is that for most startup employees, their equity never becomes real money. The company fails, or it gets acquired for less than hoped, or it stays private indefinitely while the paper value slowly evaporates.

A Framework for Thinking About Equity

If you’re evaluating a startup offer or trying to value your existing equity, here’s my framework:

Assume your equity is worth $0 until proven otherwise. Make financial decisions based on your salary, not on potential future equity value.

Ask about the cap table. How much has been raised? What liquidation preferences exist? At what valuation would your shares actually be worth something?

Look for real revenue. Pre-revenue companies can still be valuable, but the odds are much worse. I’d rather own 0.1% of a profitable company than 1% of a company burning $10 million a month with no revenue.

Consider the exit path. Is this a realistic IPO candidate? Who would acquire them, and for how much? If you can’t imagine a plausible path to liquidity, the equity probably isn’t worth much.

Watch for red flags. Excessive burn rate, frequent down rounds, declining revenue, executive turnover - these all suggest your equity is heading toward zero.

The Next Correction

I don’t know when the next market correction will happen. But I know it will happen. It always does.

When it does, we’ll see the difference between real wealth and paper wealth. The companies with actual revenue and sustainable business models will survive. The ones built on pitch decks and future promises will see their valuations collapse.

And suddenly, all those paper billionaires will discover what they actually own: a pile of worthless stock certificates.

I’m not saying every high-valuation startup is doomed. Some will succeed. Some will justify their valuations. But most won’t. History tells us that again and again.

So the next time you see a headline about a 22-year-old billionaire, ask yourself: are they really? Or are they just sitting on a pile of paper that might be worth something someday, if everything goes exactly right?

My bet is on the latter. And I think we’re all going to find out soon enough.

Have you worked at a startup? Did your equity end up being worth what you thought? I’d love to hear your story - the good, the bad, and the worthless.