Playing poker with investors

Poker Short Stack

“This round is closing in two weeks. Are you in or out?” vs. “This term sheet self-destructs in two weeks.”

Take it or leave it. Investors are particularly good at this. Here’s why:

  1. They are way more experienced than you. Let’s say you’re pitching First Round Capital. They have invested in 185 companies and participated in 297 rounds (at time of publication). I consider myself a somewhat experienced entrepreneur, and this is my second company and third round.
  2. They have a way bigger stack of chips.

You’re never going to win a staring contest with a VC. In six months, they’re still going to be collecting their management fees while you start making plans to move back into your parents’ basement.

But entrepreneurs have three great things going for them:

  1. Carried interest. VCs often make 2% management fees on the fund and 20% carried interest on the fund’s profits. Nothing kills an investor more than that fund-maker that slipped through their fingers (See Bessemer’s Anti-Portfolio).
  2. The rest of the table. VCs try to get you to focus on a one-on-one battle. But you can engage with hundreds of investors at once. Don’t let a few rejections get you down.
  3. Your cards. Your startup is your gamble. But you get to pick the team, build the product, and target the market. Do it right, and your odds skyrocket.

I walked into every negotiation with a great hand and a tiny stack of chips. Be supremely confident that you’re holding a future billion-dollar company, and then go all-in.