Startup Funding Espresso – The Babe Ruth Effect

The Babe Ruth Effect

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

The Babe Ruth effect mental model comes from Babe Ruth who once said:

“I swing big, with everything I’ve got. I hit big or I miss big.”

The mental model postulates that it’s better to take big risks than to avoid failure.

Eventually, the big risks will pay off and will outweigh the failures.

In investing, venture capitalists follow the Babe Ruth effect by betting big and then ignoring the ones that didn’t make it.

To pursue the Babe Ruth effect as an investor consider the following:

Find sources of quality deal flow.

There’s no shortage of deals, but there is a finite number of quality deals.

Setup a process for diligence and deal negotiations.

It’s a process that you will repeat many times so set it up for efficiency.

Startup success rates tell us only one in ten will be a home run. 

Prepare yourself mentally to lose on seven to nine deals out of every ten.

Invest with others to share the deal flow and diligence.

It takes substantial work to fund and then support a deal so don’t go it alone. 

The Babe Ruth effect tells you to focus on maximizing the upside and not just mitigating the downside.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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