From The Archives: The Poker Analogy

I've written 5,680 posts according to Typepad. There are a lot of gems in the back catalog here at AVC. So I'm occasionally going to feature old and possibly forgotten posts under the tagline From The Archives.

I've been playing a lot of poker while on our ski vacation. The youngsters think they've got game and in fact they do. But I've been holding my own and am up nicely on the week.

Which brings me to a post I wrote in November 2004 called The Poker Analogy. Here it is without the intro and with a few edits.


Poker is an incredible game.  It is about risk management and knowing when to go for it and when not to.  So is the VC business.

Early stage venture capital is a lot like poker.  The first round is the ante.  I think keeping the ante as low as possible is a good thing.  I like to think of it as an opportunity to play in the next round and to see the cards.  Clearly, we don't ante up to just any deal, but it is very useful to think of the first round as the ante.

For the first year or 18 months, however long the first round lasts, you get to "see your cards".  You learn a lot about the management team.  You learn a lot about the market you've chosen to go after.  You learn about the competition and a whole lot more.

Then you have to decide whether to you want to see "the flop", that is the next year to 18 months.  The price to see that is usually higher.  If you don't like your cards (ie the management team, the market, the competitive dynamic, etc) then you fold.  Cut your losses.  Preserve your capital.  Wait for the next deal. 

In poker folding is simple.  In the VC business, it's not that simple.  Sometimes you can fold by selling the company or the assets.  Other times, you need to shut the business down.  It's not easy and many inexperienced VCs make the mistake of playing the hand out because they don't want to face the pain of folding.  That's a bad move.

If you structure your deals appopriately, you can often get three or four rounds (three or four flops).  As your hand strengthens, the cards get better, you increase the betting, putting more money at risk in each subsequent round.  That's how smart poker players win and its also how smart VCs win.

The poker analogy only works so far.  Bluffing doesn't work in the VC business.  If you've got a bad hand, you really can't bluff your way out of it.  But on the other hand, you can impact the cards you've got.  You can work with management, beef it up, switch markets, buy some businesses, etc.  You can significantly improve your hand if you work at it, something that's not really possible in poker.

This is why I think VC is mistakenly seen as risky.  Sure the ante is very risky.  But if you play your hands right, the subseqent rounds are much less so, and the fact that you can put most of your capital to work in the later rounds makes the total portfolio a much less risky proposition than the upfront ante.

#VC & Technology

Comments (Archived):

  1. LIAD

    Emotionally accepting sunk costs in poker and by extension in business and life is a precursor to making better decisions.

    1. andyswan

      It’s amazing how important that is and how NO ONE teaches it.  Attachment to sunken costs is a constant theme among people who constantly lose….trading, poker, relationships, crime, health, etc.My wife calls me callous.  I consider it a compliment.

      1. JLM

        Well, consider the possibility that both are correct, you callous SOB you.  That was a compliment.



        1. Matt A. Myers

          So long as you’ve learned how to let go, otherwise people feel the past very much in the present. That’s why I like the intent with yoga, is to learn how to be in the present (not all of the time, though it’s a good baseline – and allows you to take everything in and react in real-time – to enjoy life more, or experience all parts of it anyway, including suffering – though “fully know suffering to fully live” is very true, proper translation of “life is suffering”).

        2. ShanaC

          Its not though – it leaves traces on you in your memory.  it helps shape you, its your roots.

      3. Matt A. Myers

        That’s what friends and therapy is for, and yoga.

      4. LE

        Related – in negotiation the more time you spend on a deal (the more you take of the other parties time) the less likely they will be to walk from the deal. (Assumes normal psychological makeup of course.)I taught this lesson to my ex wife.And I am very proud to say she used it against me.In the lawyers office, ready to sign the papers, she said “oh one more thing, I also want you to pay for a trip to Disneyworld for me and the kids.”I agreed and didn’t even think twice about it.

        1. Mark Essel

          Sorry to hear how she learned the lesson. Hope they enjoyed the hell outta the trip though!

      5. Donna Brewington White

        I think the key is being able to recognize when something is truly a sunk cost. 

      6. LIAD

        True dat.Throwing away anything you’ve invested in, whether financially or emotionally, is super hard. – you got to know when to hold ’em, know when to fold ’em.

    2. JLM

      Most people do not emotionally understand the concept of a sunk cost.  There is a fundamental lack of knowledge at work here.



        1. JLM

          Leave only ashes behind, you big dumb but very loveable red head eating dino.  Regards from the Lone Star State.

          1. FAKE GRIMLOCK


          2. JLM

            I have absolutely no idea what that means but I like it anyway.

          3. Matt A. Myers

            @JLM Just go with it, or he’ll eat you.

          4. Cynthia Schames

            Remember, Dino: BE ON FIRE can only ignite others who are willing to burn, though.   

          5. Mark Essel

            Inspiration and energy and action are contagious.

          6. Donna Brewington White

            Yes, FG, yes!Although, it might infuriate them.  (Because they recognize the burning as a threat rather than as an invitation.) 

          7. Donna Brewington White

            Surprised he didn’t eat the lone star.

        2. Matt A. Myers

          “Run fast for your mother, run fast for your fatherRun for your children, for your sisters and brothersLeave all your loving, your loving behindYou cant carry it with you if you want to survive”…Eg: Love in the moment, while on fire

          1. Michael Elling

            I think guys should try running on heels like Florence!

          2. Matt A. Myers

            I’d like to try to master walking in heels first..

      2. Donna Brewington White

        I’m not sure most of us understand the concept intellectually either.

    3. Luke Chamberlin

      That and not being shaken when the right decision leads to a bad outcome.

      1. Donna Brewington White

        This is an intriguing thought.  How does the right decision lead to a bad outcome?

        1. Cam MacRae

          The outcome is essentially a random event, from a distribution (at least in part) defined by the decision.As an aside, this is one of things that make rem committees so much fun: do you reward good decisions with bad outcomes, or simply good outcomes?

          1. Donna Brewington White

            I see.  I was thinking from a direct cause and effect perspective.  (Control issues? Me?)BTW, stumped on what a “rem committee” is.  I think that Google may have let me down this time.

          2. Cam MacRae

            @twitter-41899343:disqus explained it nicely above: good decisions, in this case the decision with the highest expected value, made in the face of uncertainty can have bad outcomes. People who consistently make good decisions tend to have more good outcomes.A remuneration committee is a committee of non-executive directors who determine the compensation of executive directors and senior executives in a public company.

          3. ShanaC

            I keep thinking the statement “the road to hell is paved with good intentions”That being said – should I really reward bad people who end up doing good things?I always hope the the core of doing good and learning from it is what we all actually get rewarded for.

          4. Donna Brewington White

            Yeah, what she said.  

          5. Donna Brewington White

            I believe in business you must reward the stuff that performance is made of, i.e., outcomes and behaviors, not intentions.  Perhaps you use those other factors in making determinations, but not in issuing rewards.

          6. Donna Brewington White

            deleted — replied in the wrong place.

          7. Cam MacRae

            Intentions don’t really factor into it. Decision quality should, in my opinion, but it nearly never does. That’s why you see so many people rewarded for diving catches.

          8. Donna Brewington White

            Re your remuneration committee, we call them compensation committees here in the “stites.”I did see the definition you shared when searching Google and it did make more sense than Racial Ethnic Multicultural, Rapid Eye Movement and that rock band of the 70s/80s.

        2. Mark Essel

          Limited knowledge and influence – no amount of sharp decision making can overcome it.

          1. Donna Brewington White

            Aha!  The stuff that humility is made of. If only we could always know in advance what it is we don’t know.

        3. JamesHRH

          This is a large part of modern golf psych.You can do everything right and still not execute perfectly, which leads to a “bad” outcome – putting in particular.The goal is to measure the process, which is the only thing you can control.

          1. Donna Brewington White

            Well, at least there is SOMETHING that can be controlled.  I was getting nervous there for a moment.Well said.  Thanks.

        4. Luke Chamberlin

          To continue the poker analogy, let’s say that you have two plays. The first play would give you a 50% chance of winning the hand and the second play a 60% chance.The second play is always the right play if you want to win. But sometimes the second play leads to you losing (40% of the time to be exact).Human nature makes it very easy for us to make the second play and feel like we’ve done something “wrong” when it leads to a loss. “I should have done something different” is what we think to ourselves. But no, you did exactly the right thing.

          1. Donna Brewington White

            Got it. Great explanation.  Thanks.So, in other words, no matter how knowledgeable, wise, smart, experienced…you only have so much control over outcomes.

    4. Donna Brewington White

      Never thought about it like this.  Great point.  Seems like this is could be one of the greatest contributors to chronic gambling.  Thinking you can recover something that cannot be recovered.

    5. fredwilson

      that’s an excellent summation of the post!

  2. William Mougayar

    You’ve started with the first year to 18 months. How about the first 3-9 months- what’s the analogy there? That aside, I would say the USV hand is pretty strong. 

    1. fredwilson

      short antes (measured in time) put more pressure on the entrepreneur

  3. ShanaC

    are there higher and lower stakes vc games?  and how do you tell?



      1. ShanaC

        in the fund or in the return?  Just because you have a large fund doesn’t equal a high stake/low stake vc game

    2. wilfra

      I think GRIMLOCK nailed this one. That is one of the really cool things about applying poker concepts to investing. You can scale massively and be playing the same game. In poker as you move up obviously the game gets much harder.

    3. fredwilson

      fund size?

      1. ShanaC

        interesting choice of answers considering your most famous post (sets) is about venture capital math.

  4. JimHirshfield

    I like this analogy alot.Another case where the analogy falls short though is that there’s always a winner in poker.

    1. andyswan

      Yep, and his name is “the house”

    2. Aaron Klein

      …and the player can do things to control and improve the order of the cards to come. :)Edit: I hit send too fast. The cards themselves can also affect the game’s progression in some key ways!

    3. fredwilson


  5. andyswan

    The difference between poker and VC is that we’d actually enjoy reading your “bad-beat” stories in VC

  6. JimHirshfield

    That’s just finding or being invited to the best tables, no? (I believe you’re referring to pre investment stage)

    1. JLM

      Very astute observation and one that FW has a huge advantage through the hard work he has invested in things like quality of deal flow is more important than the quantity of deal flow.

      1. Evan

        game selection is the biggest difference in gross winnings between poker pros.

      2. fredwilson

        that is my view and why USV does what it does

    2. Marc Brodeur

      Yea, some people use the “throw mud at the wall and see what sticks” metaphor. I say NO. Look over your hands closely and bet big on the ones most likely to win.

  7. Tom Labus

    Guys can screw up the whole game by throwing in too much upfront.

    1. fredwilson

      and regularly do

  8. Jeff T.

    “If you structure your deals appopriately, you can often get three or four rounds” — what does appropriately mean?  what type of terms are you talking about?

    1. fredwilson

      get pro-rata rightskeep round sizes reasonablestuff like that

  9. Marc Brodeur

    I’ve read stories about companies that grow really fast under a bubble scenario and then sell out. I would consider that bluffing. I think Mark Cuban did that with and some naysayers would say that Groupon just did that.

    1. JLM

      I agree.  I am just enthralled and mesmerized w/ Groupon — one of the greatest head fakes of our times.



        1. Ela Madej

          Said it on Twitter and will say it again –  I diagree, human brain inexplicably amazing. Fixing would only do harm.

          1. FAKE GRIMLOCK


          2. Ela Madej

            I feel if we keep it going this will be about form and not about the merit. Good that people get lost from time to time, this is how serendipitous discovery is possible, it’s also a cornerstone for real creativity (= not being afraid of being wrong). Errare humanum est.

      2. Matt A. Myers

        I’ve been blown away by it too. The whole method of selling and buying is still shifting, and it’s not the current fad. Facebook will disassemble slowly too unless they’re able to make some smart buys, but I think the smart business owners wouldn’t need to align themselves with them nor would they want to – unless they’re just looking for an exit (and Facebook overpaying).Groupon and Facebook’s success are just a signal for missing pieces, but they’re only harnessing old old technological structures (controlled ecosystems / metrics that go along with them). Old business styles are dinosaurs and aren’t best for consumers or businesses.

        1. sigmaalgebra

          > Facebook will disassemble slowly too unless they’re able to make some smart buys,I could see smart improvements, but why “smart buys”?

          1. Matt A. Myers

            From everything I’ve seen at Facebook they’re not innovating towards where things are going; The word innovation itself is neutral, and shouldn’t take on the positive connotation it usually is insinuated to have.You might hear the majority of people saying they like Facebook – but the part they like is the connection to their friends it gives them. What I hear when talking to people though is that’s the only thing holding them there. And sure, that’s allowed them to get big to where they are, and to do bad things to their user base – but people online are mobile. There will be a tipping point.Most people don’t know what they want until you show it to them, the better option, the better way.That brings me to the conclusion that they’ll have to buy up companies who do know what they’re doing, where they’re innovating towards where things are moving.

          2. sigmaalgebra

            For the progress they need, I’d think that their better approach would be building internally instead of buying externally.

      3. Cynthia Schames

        Tweetable:  “Groupon–one of the greatest head fakes of our times”. 

  10. Brandon Burns

    VCs might not be able to bluff, but entrepreneurs do. It still baffles me how many people who’ve never built anything in their lives manage to get funded and some, despite lackluster products, even end up successful with consumers. The “hustler” is the bluffer, and in this biz he seems to win an awful lot. I used to think unfairly but now, considering how often hustlers win hands compared to folks who actually make the product, I’m taking a closer look. 

    1. Matt A. Myers

      That’s because there are amateur investors who don’t understand the game either; You can make a lot of money off of bad poker players (and sometimes they can get ‘lucky’ too).

    2. Cynthia Schames

      Not all hustlers are bluffers.  Some of us truly believe in–and INSIST on delivering–the value created by the thing we’re out hustling for.  

      1. Brandon Burns

        true. if anything, my observation of the win frequency of hustlers is an admission that their skills are just as important as those of developers and designers. as long as they’re playing a strong hand.

        1. Cynthia Schames

          Yep, strong hand is imperative.  Not easy to hustle with a 2 J in your hand.  Been there, done that, didn’t win. Will never do it again. 

  11. kidmercury

    IMO the riskiness of speculation is more about the speculator’s ability to manage risk than the speculative vehicle. for instance, for a professional active trader who knows how to manage risk, daytrading is very low risk. of course for the untrained speculator it is a disaster waiting to happen.

  12. Aaron Klein

    Love the analogy. Another difference is that it makes no difference to the cards how much you bet on them.With startups, it’s in the interests of both sides to keep the bets reasonably sized. If bad cards keep turning over, it can be the difference between a modest win and a complete defeat.

  13. Stanislas Marion

    I love poker analogies because they ring a bell. I played online poker professionally for a year and paid a huge part of stanford eng grad school with my winnings, all starting with 50 bucks. I cherish what it taught me considering risk taking, making positive expected value decisions, and being resilient to luck swings, focusing on long-term results instead of short-term variance.However I completely disagree on one of your points, which is that folding is easy in poker. Once you’ve played a few streets of poker (rounds in VC), you get pretty attached to your hand and the emotional impact hurts a lot more. Maybe you meant it in a practical way, clicking a button or throwing your cards away being easier in that sense than going through the process of liquidating assets or shutting down a company. But from a psychological point of view it is exactly the same. Be it cards or anything else, folding when you have invested a lot is tough on the heart.You do raise a super great point on structuring a deal, this is an analogy that I rarely see. In poker planning a hand is super important and most people play street by street without worrying about the coherence of their actions, and this is where good players shine and make a difference. They have a plan and they stick to it until it’s proven it is not optimal.

    1. fredwilson

      i didn’t mean it in an emotional sense. i meant it logistically. once you’ve decided to fold in poker all you have to do is toss your cards. folding a business is a lot more complicated

      1. Stanislas Marion

        ok thanks for clarifying.

  14. $3236

    The analogy holds in certain respects for limit poker.  “Limit poker is a science, but no-limit is an art. In limit, you are shooting at a target. In no-limit, the target comes alive and shoots back at you.” (Jack Strauss)

    1. fredwilson

      no-limits is not in my vocabulary!

    2. Cynthia Schames

      Aha, that is an extremely important distinction.  I play only no-limit. Thus, my game is an art: much more about intuition, action, and table read, and much less about the science of limit poker. The psychology of a limit player is vastly different than that of a no-limit player.  In limit games, nearly everyone is willing to pay to see the flop.  I personally think the noise to signal ratio is overwhelming because of that.  I vastly prefer to either fold or pay a higher price to see the flop, and I’m willing to pay a higher price based on a much improved “signal”, ie: playing against a self-curated smaller list of players. Nothing annoys me more than a table where everyone limps through to the river.  Commit, or go take a walk through the shops.

  15. DragonIDisqus

    The assumption is that you play the cards you’re given but VC’s / businesses have the ability to add/change their cards aka personnel to improve their hand!

    1. fredwilson

      that’s in the post

  16. Ela Madej

    Being an entrepreneur, I really liked Tony Hsieh’s poker analogies in “Delivering Happiness”. I actually copied them to my Moleskine. A quick search and here they are: http://www.huffingtonpost.c….I particularly like the ones about evaluating market opportunities & picking the righe battle: 1. “Table selection is the most important decision you can make”, 2. “It’s okay to switch tables if you discover it’s too hard to win at your table” and 3. “If there are too many competitors (some irrational or inexperienced), even if you’re the best it’s a lot harder to win”And those for finance (bankroll) management & strategy:1. “Go for positive expected value, not what’s least risky”2. “Make sure your bankroll is large enough for the game you’re playing and the risks you’re taking”3. “Don’t play games that you don’t understand, even if you see lots of other people making money from them”4. “Figure out the game when the stakes aren’t high”But many more great one because business is a game and a game of skill, risk and nerves. That’s why those analogies work so well.



    1. Elia Freedman

      Don’t you mean eat everyone and walk away?

    2. Robert Holtz

      Wow, @FakeGrimlock:disqus — makes me think maybe you just ate Kenny Rogers.

    3. ShanaC

      Have you ever eaten someone while playing poker?

  18. Richard

    I’ll call you on the no bluffing analogy. 🙂 In an IPO,  just  what are  the sales team spewing to investors when their own research analysts are less than convinced about the prospects of the stocks? Isnt it bluffing when an  underwriter who recommends a rating less than a buy for a client while at the same time  appears at the road shows with his hand out? 

    1. Alex Murphy

      Another place where bluffing seems to happen is on the big raises where the company raises big cash on a big pre, only to have nothing there except a big flame out.  They bluffed before the flop.

      1. Richard

        I dont see that so much as a bluff. It is more like not knowing how many aces are in the deck.

    2. fredwilson

      IPOs are a long way from early stage venture capital

      1. Richard

        As companies move through the funding rounds, from seed to A,B,C …to exit dont some prior round investors bluff, to some degree, to get higher valuations at the subsequent rounds, or does the reputation effect prevent this?

        1. fredwilson

          i think the market sets the price of rounds unless they are insider rounds

  19. Rohan

    There’s one critical step before all of this I think – Picking the right table. If you’re a professional poker player, picking the right table makes all the difference in the world.In your case, I think it would refer to the kind of companies you choose to invest in i.e. your thesis

    1. Brad Lindenberg

      Picking the right table means picking a large total addressable market. You can’t ‘change tables’ in business as easily as you can at the casino. You’ll be at it for 3 years if it becomes a $1m biz or 3+ if it becomes a $100 m business.Picking the right table also means timing the market ‘skating to where the puck is going’

  20. joe

    So VC investing is like poker with the ability to stack the deck?

    1. fredwilson

      that’s not what i said

      1. joe

        Sorry – just my attempt at humor.  What you decribe is in line with option theories – is it not?

  21. Jan Schultink

    It would be interesting to hear your perspective on the difference 7.5 years make. Presumably the markets you choose to invest in are no longer the gamble they were for you in 2004?

    1. fredwilson

      i think the analogy still works

  22. Conrad Ross Schulman

    Very interesting piece. I believe the winning poker player is the one with the most patience. ps -> What was one of your lowest antes? 

    1. Matt A. Myers

      The only problem here is markets change / opportunities disappear due to someone else discovering them and doing them or life factors.

    2. fredwilson

      $250k in Etsy

  23. William Mougayar

    My Dad was a pretty good Poker player, playing impromptu games at dinners or visits with his doctors buddies. He never encouraged me to learn it or be good at it. It was more of an “adult” thing. But I wished he did, because there are life lessons one can draw from playing pokers. I wished we had had this kind of interchange:”How long does it take to learn poker, Dad?” “All your life, son.”

    1. Matt A. Myers

      Maybe it’s best learned through discovery

      1. Brandon Burns

        i used to lose at poker all the time and didn’t discover a thing. someone had to sit down and teach me the secrets of winning. now i’m pretty decent. maybe poker/investing needs some aided discovery.

        1. Matt A. Myers

          Well, with anything you need to learn the basics first – it’s the nuanced parts you learn through experience. People will have a natural level or depth they are able to ‘sense’ their way into. It does help to surround yourself in those who are experienced and will of had a chance to learn nuances. 🙂

    2. Cynthia Schames

      It does take all your life to master, but that doesn’t mean you can’t be very, very good at it before you fully master the game. In my style of play, poker’s really about reading other people. It’s actually not about playing odds, counting cards, complex deck calculations, etc.I’ve won several TX Hold Em casino tournaments, and actually had to stop playing online when I amassed too much in winnings to actually bring back into the US at all legally (this was before the huge crackdown). I’m nowhere near good enough to play in the World Series, but that doesn’t mean I don’t have a blast continuing to refine and learn the game. Headed to Atlantic City this weekend, in fact. See you at the tables 🙂

      1. William Mougayar

        So behind this angelic face of yours, there’s a poker face 🙂

        1. Cynthia Schames

          Heh. William. You’ve spent enough time with me to know there’s no angel here other than when it comes to writing checks 😉

          1. Donna Brewington White

            Very clever comment, Cynthia.

          2. Cynthia Schames

            Thanks–I try!

      2. Reddy_s

         poker’s really about reading other people. It’s actually not about playing odds, counting cards, complex deck calculations, etc.I agree ..

  24. Anonymous

    Too bad there’s no way for me to hone my skills in a real game of poker online.

  25. FlavioGomes

    The poker analogy is perfect save for one big issue….it’s a zero sum game.

    1. kidmercury

      so are financial markets…… 

      1. FlavioGomes

        The unhealthy ones anyways.

    2. PaulMeloan

      Poker is a negative sum game. You can only win what someone else brought minus the rake. Barry Greenstein noted that it is not good enough to be better than the other players you also have to be better than the rake, which is much harder.

  26. Pete Griffiths

    Hence the importance of metrics as early as possible.  In poker we know the numbers.  In business we have hunches very early but need numbers asap.

  27. kidmercury

    hey how about twitter standing strong and not turning over data to the government:…thank you twitter! structurally though this is the problem with the one world social networks……easy targets for the feds, makes resistance tough. but this is really great, have to give props. 

  28. Jennifer McFadden

    I took Strategy with Barry Nalebuff at Yale SOM. For one of the classes, he brought in a WSOP winner to talk about how you could apply poker to strategic decisions. I then helped arrange a 40-person tourney at Nalebuff’s house, where we “applied” our skills. [I made it to the final table–knocking out the WSOP player on the way–but lost on a stupid bet. Still hurts.]I think that you’re missing one critical piece from your post–the social aspects of the game. We had an ongoing, bi-weekly game at SOM and the one thing that you learn is everyone’s particular style of play and tells. After a while of playing with the same crew, you begin to understand who pushes the boundaries and bluff’s regularly, who plays aggressively early on–even if they have no cards, and who is likely to wait until the last round to begin pushing up the pot. My guess is that this comes into play a bit with the entrepreneurs and investors that you encounter via USV. Seems to me like the space at USV would be the perfect place to test these theories with a little tourney 🙂

    1. Evan

      most poker players would argue that 90% of tournament players are degenerate gamblers who don’t know how to play poker.

      1. Jennifer McFadden

        Well, I’m not sure if he was a degenerate. But, I certainly don’t think that I am. I would say that tournaments among friends and colleagues can be fun. And, personally, I’m in it for the fun. It is, after all, just a game.

        1. Evan

          I maybe should have provided more context: most of the people you see on ESPN playing tournaments have a negative net worth.  Very few of those people are actually winning poker players on the whole.  Those of us who grind/grinded cash games are actually good at poker.  Tournaments are mostly just tests of luck.

          1. Cynthia Schames

            …and tests of patience.  Tournaments can be BORING, and you don’t have the luxury of switching tables until and unless you win your way to a different player mix.

      2. Alex Murphy

        Sounds like how some people talk to Entrepreneurs.  Neither are right.

      3. JamesHRH

        I know a pro who holds this opinion.

    2. fredwilson

      i rarely bluff, i fold when i don’t have the cards, and i work the pot hard when i do

      1. Jennifer McFadden

        Good to know in case we ever meet at a poker table 🙂

  29. wilfra

    As a former professional poker player I love this post. There are so many things poker taught me that have helped me in business: both in investing and in founding and running a business.One thing I really wish people in the startup world ‘got’ like poker players get is the concept of results oriented thinking. In poker if you say somebody has results oriented thinking it is a criticism, often an insult. Typically you say it when somebody plays a bad hand but wins anyway, telling them they should learn from their mistake even though in this instance the ‘mistake’ resulted in them winning money (for example in NLHE a player calling a raise with 94 and flopping a full house, even though he should have folded pre-flop). It can also be used to tell people not to regret correct decisions they made that didn’t go the way the odds said they should have (like a player calling an all-in with pocket kings and the guy happened to have pocket aces).The point is that you only focus executing the correct decisions. You don’t worry about the results, they take care of themselves. If you made the correct decisions and lost, you can hold your head up high. If you made poor decisions and won anyway, you should not be proud of yourself.Jeff Bezos is one of the only people I’ve heard of that really gets this concept in business. He judges the performance of his employees, from what I have read, based not on the results they achieve, but on whether or not they made good decisions. Smart guy. He’d make a great poker player.Whether people want to acknowledge it or not, there is a great deal of luck involved in business, especially in technology startup investing. Arguably more so than in poker. Often times people who make poor decisions and get very lucky and succeed anyway. They are nonetheless treated as demigods for the success they achieved. Others make fantastic decisions and fail because luck was not on their side, yet their demise is often treated as a cautionary tale and people second guess the decisions that they made.Didn’t mean for that to come out so long, sorry 🙂

    1. JaredMermey

      This idea is conceptualized in poker using Sklasnky dollars named after David Sklansky. It is a nice way to quantify decision making and separating luck from the output (i.e., dollars won).…  

    2. fredwilson

      that’s a great comment. we try to use the same approach when we do post mortems on our investments. if we invested for the right reasons, made the right calls, and lost money anyway then we walk away happily. if we invested for the wrong reasons or made the wrong calls, we internalize those mistakes in the hopes of not making them again.

      1. wilfra

        Thanks.I think you’re missing a very important element there though: Investing for the wrong reasons and making money anyway. Decisions should be viewed as ‘good’ or ‘bad’ even – especially – if they turn out well, otherwise poor decisions may be purposely repeated in the future, like when bad poker players play any two suited cards because sometimes they hit a flush and win big. They don’t realize they are bleeding money in the long run.Of course in poker this is much easier to determine. With investing there is no way to run it a million times in a simulator to see what your true expectation was and whether you simply got lucky or whether you made a good investment.

    3. Well Informed Optimist

      This is a great insight, thank you!

  30. Elia Freedman

    I have folded on many business ideas in my fifteen years of running my company, but I have doubled down on the vision, which is why I am still doing this after fifteen years. Maybe I would have been better off folding the company and spinning up a new one but I didn’t.It’s an interesting analogy and one that dawned on me one evening two years ago while playing poker with my cousins. Thanks for re-posting. I think a weekly (or whatever) revisit from the archive is a great idea.

  31. << Work at home, $60/h, link

    The man who acquires the ability to take full possession of his own mind may take possession of anything else to which he is justly entitled.

  32. matthughes

    This post would make more sense to me if we were talking about online poker. 😉

  33. jason wright

    So which card game does the private equity investor play, Asshole or Shithead?

    1. Donna Brewington White

      Watch it.  One of my closest friends is a private equity investor and one of the nicest people on the planet.  But he does not suffer fools.Plays Monopoly.

      1. jason wright

        Oh, you know Guy?

        1. Donna Brewington White

          BTW, I was kidding about Monopoly.  The only game he really plays is golf.Surprised that golf didn’t come up more in the comments.

  34. Jamey Kramar

    What’s your royal flush so far?

  35. Evan

    As a former professional poker player, this is why you should hire a former pro poker player.  

    1. Donna Brewington White

      Evan!  Long time no see.  How are you?

      1. ShanaC

        thank you

        1. Donna Brewington White


  36. Alex Murphy

    Two other key differences:- you can switch out some of your cards, you don’t have to fold in start up land- you are not running in a zero sum game, there are generally many winners on the growth path.  ie, Zynga is not the only social gaming companyOne other thought … @voicebunny’s audio file is awesome!

  37. goldwerger

    I’ve been reflecting on this, and I think this can also be delineated as follows -For the VC – it is Poker – how to win on average across multiple hands, and how to double down and play the hands that are promising.For the Entrepreneur – it is Chess – how to plan couple moves ahead, be willing to change strategies (and pieces) to changing conditions of gameplay, and about winning one single great game.Then again, I “bet” there are some even better analogies in sports that combine strategy and risk taking with team play (Football…?;)Great post!

    1. Alex Murphy

      I like the chess analogy.  But thinking several moves ahead applies to Poker too.  Showing a single card, bluffing and not showing, bluffing and showing, betting big then folding, or just folding a bunch of hands in a row.  All different tactics to deploy a strategy to gain an advantage in future hands.  

      1. goldwerger

        Yes, good point Alex…I was focused on the aspect of managing a VC portfolio for maximum performance, which entails a certain type of risk management approach across multiple hands, and knowing in which of them to go deep in order to average out well over everything in the long run.Compared to managing a company, which entails a different type of risk management that has a portfolio of one, and requires successfully playing a single hand over a long period of time because there is no averaging, but there are many more forks in the road.

    2. fredwilson

      And therein lines the inherent tension in the VC/entrepreneur relationship. They are playing different games.

      1. goldwerger

        And they’re playing different games on the same court…

        1. fredwilson


  38. Chris Sparks

    Fred -Really enjoyed your perspective here.  Glad that someone in the VC world actually “gets it.”As a former top professional poker player and successful poker backer (investing/managing poker players) who is trying to break into VC, my attempts to explain all of the valuable lessons gained through my poker experience have unfortunately fallen on deaf ears.  As another commenter brought up, the herd mentality and results oriented thinking I have found in the equity/venture worlds has been shocking to say the least.One of the biggest takeaways from poker for me is that the most talented players aren’t always the most successful in the long run  Even accounting for variance (the one deal that delivers the returns for your whole fund), being the smartest guy at the table is at best just an indicator of success.  Poker (and investing) are all about patience and discipline. There is always another game (deal) and the fear of “missing out” has been the downfall of many investors much smarter than I.I know you only play poker recreationally, because you enjoy the competitive edge. However, if you are interested in learning some of the finer points of the game and really stick it to us young guys, would love to grab a coffee sometime.Chris Sparks (@SparksRemarks)

    1. fredwilson

      You are so right. I live by that last line.

  39. FinRes


  40. Maskd Financier

    Thanks for the re-post Fred.I have written a great deal on the subject of investing and poker at my site (and a book to boot), and some of the posts incorporate VC discussions:http://texasholdeminvestinghttp://texasholdeminvesting…Would welcome feedback.Keep up the good work.

  41. Paul Sanwald

    I remember this post, this was a great one. back when online poker was legal, I played quite a bit, there was a point in time where you could make a stupid amount of money playing online. I stopped playing after UIGEA took effect, and I’m glad I did. The money was great, but the swings were very stressful and I found it extremely hard to balance playing high stakes poker with my day job. Still, I learned a ton about risk, statistics, bankroll management, pattern recognition, and a lot about people from playing cards. I use something I learned at the poker table pretty much every day of my life.

  42. Donna Brewington White

    Do I recall correctly that you don’t really think of VC as gambling?  

    1. Robert Holtz

      Insightful comments, @donnawhite:disqus .And I DO think that wisdom from the game of poker transposes to a lot of real-world situations, especially corporate negotiations. Reminds me of a quote from the late/great Paul Newman who said, “If you’re playing a poker game and you look around the table and can’t tell who the sucker is, it’s you.” I’ve lost count of how many times that quote has come to mind when I needed it.  Words to live by!  Thanks, Fred, for the analogy. It really applies.

      1. Donna Brewington White

        Thanks, @robert_holtz:disqus .

    2. fredwilson

      I don’t. But the poker analogy still works for me

  43. Donna Brewington White

    Sunk costs generated a bit of discussion.  A post on this sometime, please?

  44. Vineeth Kariappa

    Does working on holiday, count as a holiday?

    1. fredwilson

      Good question

  45. Tommy E

    It’s a shame online poker hasn’t been fully legalized in the US on the federal level yet.  It was my part-time job less than a year ago and was contemplating making it my full-time job.  But I guess I can thank the poker blackout for making me want to pursue some project ideas.  

  46. Dan Epstein

    Not poker, but will be interesting to those who play cards. Recent Atlantic article: “The Man Who Broke Atlantic City.”…Relevant takeaways:1) Play when the odds are in your favor (may sound familiar…).2) Play well.

    1. Cynthia Schames

      My favorite part of that article was where they said he’s “not naive to math”.  Uhh, ya don’t say.  

  47. DanielHorowitz

    Hey Fred – I’m not sure the analogy holds so well with respect to payoffs. When you choose not to put any more money in, it’s not quite analogous to folding your hand. When you fold in poker you are forfeiting your opportunity to win the pot. In venture funding, when you choose not to invest any further, it is as if you are “all in” in poker. That is, you have no more money left to bet, but you are still able to win/profit relative to the money you have put in in previous rounds. In Poker it is a big advantage to be all in because you cannot be forced to fold your hand while other players can. Staying with poker for a moment, if we only have enough money for the ante, this is actually a highly profitable situation. 10 people may put in the ante, after this we are all in and cannot win more than 10 antes, but we also don’t have to fold or put more money in. Other players continue betting and by the end there are usually only a few players left, making our hand better than 9-1 to win, and significantly positive EV. Thus, if we are able to make hundreds of antes and never play anymore we will win a lot of money. With VC funding, you have the option of continuing to bet or being all in (not folding) after each round. This option value can be significant. 

    1. fredwilson

      In early stage VC if you choose to stop funding a company the remaing shareholders will almost certainly figure out how to wipe you out. We generally sell our stock back for $1 to make it easy on them

      1. Well Informed Optimist

        Fred,Thank you for the great post. The discussion is fantastic. Could you please elaborate on some of the ways that ” the remaing shareholders will almost certainly figure out how to wipe you out. ” Thank you again.

        1. fredwilson

          there is an unspoken but understood agreement amongst early stage investors that they will not carry each other. you have to “pay to play”

  48. JamesHRH

    Have not seen anyone point this out…..the classic stress in a VC investment is the lack of alignment between a stack managing VC and a founder who is ALL IN.

    1. Cynthia Schames

      Interesting.  I didn’t see your comment before I made the comment up above about playing no-limit vs. limit.

    2. fredwilson

      Eyal pointed that out with his poker/chess comment

  49. Billy McFarland

    In poker, when you would like to play the cards in your hand, it is usuallybest to bet before the flop in order to limit the playing field. If you leteveryone else see the rest of the cards, there’s a greater chance that anotherplayer will have a better hand than you.Do you see this similar to the VC strategy?If everyone’s pre flop bet (initial investment) to see the cards (the firsttwelve months of a company) is too small, there will potentially be too manyplayers (companies) in the field. Your hand (company) is then subject to theluck, skill, etc of the other players (companies). However, if the initial bet(investment) is pretty big, many other players (companies) will choose to fold(not play out the first twleve months). Do you think like this when allocatingyour first bet on a company? Obviously it’s not as binary as this, but prettyinteresting nonetheless!

    1. fredwilson

      You know a lot more about poker than I do!

  50. Akshay Kumar

    Poker is an amazing game and there are a ton of parallels but you are making all the wrong analogies here. The whole point of the ante is to create more action so you can’t just sit out and keep folding – you are going to get blinded out. That is not the case with VC money, you have the luxury to keep folding indefinitely.What is closer to the VC business is bankroll management. Let’s say you are playing 1/2$ NLHL and the buyin is 200$. Poker is a game of chance, even if you are playing with perfect knowledge and can see all the cards and make all the right decisions someone can still beat your flopped full house with a one outer to quads on the river. If  200$ is all you had then even with perfect knowledge it was stupid to sit at that table. You made all the right decisions but still went broke because you played the wrong game. In order to sit at that table your bankroll should have been 100xbuyin. 20k$ is the sort of bankroll you need to sit at that table to account for a streak of bad luck and bad beats. I am oversimplifying it a lot but the general idea is that if you keep making correct decisions in the face of uncertainty you are going to reduce your statistical variance and your superior play will make you money in the end.Another aspect of poker analogous to the VC business is the concept of your postion at the table during a hand (round). Like Harrington’s says this is something that good players understand instinctively and bad players continuously ignore to their peril. For example if you were playing heads up against Phil Ivey and got to act second every time you’d have the best of it. It’s that vital.Then there is the question of table selection. It’s oh so important. An average player sitting at a table of pros is just suicide, he has no edge and has the worst of it. Same thing with VC business – it’s all about people, you want to make sure the founders and early employees at the company are the right match. If you see 10 VPs of product and 2 engineers in a tech startup something is just off. Don’t sit at that table you will lose more often than not. Poker is a game of patience. On the surface it looks simple, you can explain it to anyone in 5 min but takes a lifetime to master. Beginners invariably start thinking they are good after winning a couple of hands and this is what makes it so attractive to the newbie to the delight of the veteran. Same thing with the VC business someone might get lucky and make 1 good investment but the real test is the test of time. It’s not one day or 2 days, it’s everyday. It’s the sum of your decisions over 20-30 years that will distinguish the merely average from the great.There are analogies on pot odds etc and taking an initial bad bet to its conclusion, it’s not always about sunk cost and there is a correct mathematical threshold. This is just off the top of my head and I can go on and on about this but I really must get back to work unless you want to hear a pitch ;- ).

  51. Will Kriski, M.Sc.

    After being burned a few times I prefer to buy stocks with a history of increasing dividends. To each his own though. In other words, poker is gambling.

  52. fredwilson

    good idea