Promising New Comparisons: Venture Capital And Unscrupulous Poker

While capital markets are like chess, VC investing is most similar to poker. This is because VC investing requires additional bets to stay in the game, has bluffs, and includes imperfect information.

Poker is one of the few skill-based games at a casino. Sure, luck comes into play, but a skilled player will usually beat a lucky player. A savvy poker player can scare off the lucky player before cards are even shown. The same is true for VC investing.

Why it matters

Founders and VC investors need to understand that poker is the game they are playing. The founder is trying to convince everyone that their hand is the best, while the VCs invested also must convince others since the success of the game depends on more investors in later rounds.

Bluffing

Early-stage valuations are said to be more art than science. In reality, they are poker bluffs. Just like early cards in a poker game, everyone is unsure of how good or bad the new company is. We do not have enough information to make an informed decision.

Additional bets

The investors and founders must continue to make additional bets as the game continues. Otherwise, they will lose everything, just like poker. While investors are usually too savvy for the sunk cost fallacy, founders are not.

Imperfect information

Good poker players calculate the odds as the game progresses. In most forms of gameplay, they know what some of the cards are but have no knowledge of what each player is holding. Startups are the same as new hires, deals in the pipeline, and intellectual property yet to be filed could be nothing or everything.

How to win

Managing emotions is one of the most challenging aspects of poker and startups. Sometimes, you have to fold. That is for investors and founders. However, when you are confident in your hand, play it aggressively. That is, do not be frightened by other players. Instead, raise the bet continuously.

Conclusion

A robust mission is like having two good cards at the beginning of a poker game. When your mission is vital, it can help you stay in the game regardless of circumstances. However, this essential mission can also cloud your judgment. Your story is what brings the mission to life. It is like raising the bet. Your execution is critical and will keep you from having to fold.

I hope this helps you. Feel free to reply to this email for help or comment.