Herd mentality in venture investing

RECOMMENDED READ. It is not a recent blog but it addresses a very real phenomena in venture investing that is worth any angel investor's consideration. It's basic stuff, really, but if you want to avoid being the goat after an investment, its worth your consideration. 

​Check out this blog from YCombinator addressed to start up entrepreneurs. They provide a thoughtful and balanced narrative about the subject, noting several reasons why investment opportunities become hot. They also note the following:

"But frankly the most important reason investors like you more when you've started to raise money is that they're bad at judging startups. Judging startups is hard even for the best investors. The mediocre ones might as well be flipping coins. So when mediocre investors see that lots of other people want to invest in you, they assume there must be a reason. This leads to the phenomenon known in the Valley as the "hot deal," where you have more interest from investors than you can handle.

The best investors aren't influenced much by the opinion of other investors. It would only dilute their own judgment to average it together with other people's. But they are indirectly influenced in the practical sense that interest from other investors imposes a deadline. This is the fourth way in which offers beget offers. If you start to get far along the track toward an offer with one firm, it will sometimes provoke other firms, even good ones, to make up their minds, lest they lose the deal."

​Image courtesy of Wikipedia.