In poker, beginners tend to make a consistent mistake: they overplay their hand. Overplaying a hand is when a player bets big because they think they have an amazing hand, when in reality something like two pair is just a decent hand. In other words, the bet size gets way past the reality of the player’s hand.
I have seen something like that happen in fundraising. And I almost fell for it myself when I was a founder.
The fundraise overplay is when a founder tries to raise a round that is way disproportionate to traction, the opportunity, the team, or some combination of those variables. Like in poker, sometimes a weaker hand with a big bet will flop a great result - but most of the time, the overplay means the person betting just gets burned.
I remember with one of my raises that I tried to raise $5M on crazy terms… when we had 6,000 users who weren’t paying. Yep, totally nuts.
Yet in the end, we had a stellar team that was one of the top open source companies on Github, and traction was starting to ramp up, so we got a few termsheets for lower amounts and went with one of them.
So initially I had done a fundraise overplay, but corrected myself and realized that a $2M additional raise was exactly where we deserved to be - instead of getting the raise and reality even further apart.
The mistake I see founders make, especially in an over-heated environment that is analogous to playing with a table of very loose players, is they overplay their hand. From there, they try to raise way more than the stage they are at (or at a way higher valuation), continue to overplay their hand, and then try to come back when no one is bidding at that high price.
The problem is this: in poker, you just lose a hand and go to the next one. In startups, if you overplay your hand and get called bluffing, you might have just sunk your company.