From the outside looking in, the Valley and startup land in general seems to run on “social proof” – the notion that I should only pay attention to you if someone credible says I should. While it’s a well known psychological phenomenon, the term “social proof” only started showing up in my World as Angel List started to take off.
It’s absolutely true that the best way to meet people professionally is through warm intros. Especially for investors who have an abundance of opportunities to look at. So, in that context, social proof is a good and valuable thing. I only invested in entrepreneurs that came through trusted channels.
But where social proof breaks down, for me anyway, is when you rely on it to make decisions. I recently was offered a chance to invest in an angel round. This was oversubscribed with some big names investing. When I got the invite those big names seemed like the main justification for why I should invest.
I did this once before. I piled into a round that included some big VC names. In retrospect, I short changed my normal diligence process because I trusted the other investors. All I can say is that investment did not work out as planned.
Here’s the thing about startups and investing in them: Most startups fail! As a result, it is totally irrelevant who is investing in them. The best investors know they have a < 50% chance of making money on any given investment. So, if you’re offered a chance to invest, do your own homework and make your own decision.
This is of course true for any decision. You have to live with each decision you make. Don’t outsource them to others, no matter how smart they may be. Everyone has their own reasons for making decisions. Make your own.
If I sound like I’m lecturing, that’s not my intention. Just capturing my own learning from my own mistake…