VC:VC It's not about the hands you don't play

VC Truism: Like poker, it’s not about the hands you don’t play, it’s about the hands you do play. No-one went broke folding before the flop.

I have been twittering over the last few months, and am enjoying just laying out VC truisms, aphorisms, or even stupid-isms. You can catch this on my twitter feed http://twitter.com/rdale.

Entrepreneurs understandably, and to some extent correctly, take away a message that their startup isn't "good enough" if we turn down the opportunity to invest. Clearly if some of the problems we see in the deal were absent we might well do the deal. On the other hand, sometimes it really is a matter of our own workload, or interest areas, or geographic constraints, or any number of factors which have more to do with us than with the deal at hand.

Coming back to today's truism, Venture Capitalists are like poker players. We are not playing directly against others, but we get to decide when to invest, like a player decides when to bet on a hand. And just as poker players don't go broke on the hands they don't play, we VCs don't go broke on the deals we don't adopt.

We try to see the best potential in the deals to which we are introduced, and we try to be rational and reasonable about our decision making, but we are much less emotional about a no decision than we are about a yes decision. Saying yes means investing considerable time and money in a deal and this incurs all of those deal-specific risks as well as the opportunity costs related to spending our resources here and not elsewhere. Once we say yes, that is when we are in the game and playing to win, with all our emotional energy as well as everything else we try to bring to support the company. To entrepreneurs this often seems backwards: a no decision is a let-down and more, and a yes decision is clearly rational and appropriate!

On the venture cycling (philanthropic) side of my VC:VC life, we have other dynamics at play. Here, the choice of philanthropic or social justice causes which we do not support may be just as important as those we do. Without our support, or our voice, will a moral imperative fail? Will our silence (on the environment, on Darfur, on civil rights, on human rights) mean that someone is made homeless, beaten, imprisoned, tortured, or will die? Will we "go broke" 0n a hand because we don't play?