I have an awesome idea for …, where can I find an investor? This question comes back like a boomerang when I meet entrepreneurs, read posts in startup groups on Facebook or LinkedIn.
Truth be told, you shouldn’t. Before you even think about looking for capital, you need to understand how the startup funding, or in fact any funding, works.
It’s a very simple deal at the core of it. The best way to understand how it works on the investor side… is to look how professional poker players approach the game.
How professional poker players mitigate risk and win in the long run
Poker is not about luck, it’s a numbers game. In order to win in the long term, you don’t focus on a single hand. You focus on building a strategy that gives you positive expected value. Which means that if you keep playing this strategy enough times to get to a statistical relevance, you will win. For sure.
“The only way to win in the long term is to place bets that give you better ratio of success than the ratio of how much you have to bet versus how much you can win. For example: if you have to bet (invest) 1 and can win (profit) 4, you need to have better than 1/4 success ratio (more than 25% chance of success) to make money. This is the only thing that matters. Success or failure (win or loss) in one given situation is what we call luck and it is irrelevant in the long run.”
– says Łukasz Grabowski, high stakes online poker pro and coach in Smart Spin, the biggest poker school in the world.
This is how the process works:
- You calculate the pot-equity (what the chance that you have a winning hand is)
- You calculate how much you can win.
- You make a decision to place a bet or pass.
See the example below: