Can someone more clearly explain this concept to me? My logic is that, for a entrepreneur who just started a company that is pre-IPO and therefore not even public, there should be zero systematic (market) risk, and it should be all unsystematic (specific) risk. How then, is he considered to be exposed to “total risk”, or both?? Don’t the stages look something like this? Entrepreneur: unystematic Executive: both, but more unsystematic Investor : both, but heavily tilted toward systematic as largely diversified
There is always systematic risk with investments - you can’t diversify it away - it’s the risk that has nothing to do with the firm your investing in.
You have the best product in the world… but the economy is in a deep recession and everyone is bankrupt, are you going to be able to sell it? Systematic risk 
Steve Jobs can sell anything!!
Correct, the amount of systematic risk is very small compared to a diversified investor, but it is still there and cannot be completely eliminated
Systematic risk = market risk + residual risk Residual risk = regulatory risk and counterparty risk For entrpeneur market risk is indeed 0 but residual risk remains Hope that helps
Xtra, that helps. So if i amend my table above to change Entrepreneur to : “Large unsystematic component, small systematic”, would the rest of it be correct?
Look at the graph in the book. It makes sense.
I see your reasoning but I wouldn’t worry too much about the magnitude of the risk because the way I understand it an Entrepneur is pre-IPO so his Residual risk could possibly be larger than the Executive or Investor. Cause of a lack of an exchange ect. That could make his systmatic risk higher or smaller than the Executive or Investor I think the aim is to know what risks exists and not how big they are, u agree?.