Playing for the Royal Flush

My friend Norman thinks I'm a terrible poker player. Sometimes he'll stand behind me and watch me aggressively (and almost symphonically) work the buttons on a video poker machine. Norman looks at the series of decisions I make, puts his hand on my shoulder, and just shakes his head, "Dude, you're crazy. This is not how you play poker."

On one hand, it's hard to argue with Norman. He's a professional poker player. He remembers his hundred most recent hands and every move he makes is part of a broader, strategic plot. He plays tight. He reads his opponents. He never ignores the math or the statistics. Over time, Norman has basically figured out his hourly rate. He can easily predict the amount of money he'll pull in when he spreads several hours of play over the course of a single work week

I am playing a different game. Online video poker is all about one thing: Hitting the Royal Flush. The core strategy of any online video poker player (the few who have one) is to stretch out their initial investment long enough to get lucky and get the big payout (along with 12-15 watered down casino drinks). So while Norman shakes his head when he sees me throw away a high pair in order to hold onto to three other cards that could lead to a Royal Flush, it's because he's viewing my decisions through the eyes of someone who is playing a completely different game.

Norman is running a successful small business. I am swinging for the fences. My game doesn't allow for a successful small business. If I run that small business long enough, the house will eventually bleed me dry and I'll leave the video poker machine with a cheap alcohol headache and once brimming plastic bucket of quarters now empty but for a few wisps of money-scented, secondhand smoke.

As an angel investor, when I get pitched by a startup taking its first steps towards the venture funding route, I often ask one key question: "Are you sure you need the money?"

Many startups do need the money. The markets are big. The competition is fierce. The opportunity is massive. But in other cases, entrepreneurs already have a thriving business that is the right size for its market. These startups are trading in the steady promise of growing revenues for something that will instantly become an all or nothing proposal.

Once you raise money at a certain valuation, there's no turning back. Either you become a big company, or your write-off value becomes greater than the sum of your parts. You can't click your heels and go back to playing tight and making a good living like my friend Norman.

Before you enter the fundraising game, make sure you've talked to other folks who have traveled both the funding and small business routes. The Silicon Valley institutions are built around one kind of Internet success. But there are a lot of ways to make a life-changing amount of money on the Internet.

Don't get me wrong. I am an investor. I play the Internet like I play video poker. I am always looking to hit the Royal Flush. And when I do, there is a lot of money and happiness to go around. But when that hand doesn't come (through skill, timing, and a little good luck), someone's gonna be walking away from the Silicon Valley machine with an empty bucket. And that's OK as long as you know the rules going in, and you've got enough certainty about your decisions to be able to look my friend Norman in the eye and say, "I played the right cards. Shuffle 'em up and deal again."

Dave Pell writes NextDraft; a quick, entertaining look at the day's top ten most fascinating news items. Get the newsletter or iOS App here.