Should investors treat other investors' interest as signal, or decide purely on their own conviction?

Paul Graham · published Aug 2013

Whether an investor cares who else is investing is a usable test of investor quality, since the best investors rarely care and mediocre ones almost all do.

source How to Convince Investors

Paul Graham · published Aug 2013

The best investors are not swayed by other investors' opinions, but are indirectly influenced because competing interest imposes a deadline on their decision.

Averaging their judgment with others' would only dilute it; but they may move fast lest they lose the deal.

Scope: best investors

source Investor Herd Dynamics

Marcelo Claure · published Jul 31, 2023

Never invest in something you don't truly understand, and never invest because everyone else is investing

He broke this golden rule out of FOMO with the $150M FTX investment, driven by not wanting to be the only one left out while running crypto/blockchain at SoftBank

48:01 20VC: Marcelo Claure & Shu Nyatta on Lessons from Investing $7.5BN at Softbank & Why Dumb Money has Gone, Why "LATAM is Under Construction" and the Next 10 Years Will Be the Best & Investing Lessons from Missing Nubank & OpenAI & Investing in FTX

Cem Sertoglu · published Nov 20, 2024

A great fund leading the next round is a strong signal, but relying on that validation is a luxury; conviction often has to be built internally when no top fund will touch the company

At the UiPath bridge no great fund was interested, so they had to build conviction themselves

52:53 20VC: Turning $16.5M into $2.1BN; Lessons from the Greatest Venture Investment in European History: UiPath | Why VC is Not Being Commoditised | Why Price Does Not Matter | Lessons on Loss Ratio, Selling and Signalling with Cem Sertoglu

Harry Stebbings · published May 27, 2025

Investors should be conviction-driven and invest regardless of who else is in the round

Conviction should come from belief in the founder, not from the presence of other investors

45:44 20VC: The Most Insane Story in Startups: Airwallex: The Angel That Turned $1M into $1BN | The Fund That Pulled a Term Sheet & Lost $1BN | Rejecting Stripe's $1.2BN Offer | Scaling to $1BN in Revenue & 100% YoY Growth for 8 Years with Jack Zhang

Harry Stebbings · published Jun 16, 2025

When your gut says a deal is off, you should pull out of it entirely — he now does, after having overridden that instinct on a $5M investment

He had the feeling something was off, called the pedigreed lead investor, still did the deal, and regrets it

51:40 20VC: How We Made $800M on Coursera | We Lost Money on Uber and Made Money on Lyft | We Did 3x on Postmates in 18 Months | DPI is King, MOIC is BS | We Dodged Theranos and I Still Lost Millions with Larry Aschebrook @ G Squared

Oren Zeev · published Feb 2, 2026

Investors should suppress or ignore social proof and other investors' opinions and invest on their own conviction

Venture returns are driven by winners, not losers — a loss costs 1x while a win can be 100x, so being right 50% of the time on high-conviction bets is a great result

19:19 20VC: 50% of Funds Will Go Out of Business | Why Growth Expectations Today are BS and Will Not Last | Why Oren Zeev Takes $0 Management Fees But 30% Carry | Why GPs Should Not Tell LPs Their Strategy

Paul Graham · published Nov 2005

VCs' interest in a startup is largely a function of the interest other VCs are showing in it.

VCs are acutely aware of their position in the VC pecking order.

source How to Fund a Startup

Paul Graham · published Sep 2010

By far the biggest influence on investors' opinions of a startup is other investors' opinions; very few investors simply decide for themselves.

The most common question founders hear is not about founders or product but 'who else is investing?'

source High Resolution Fundraising

Paul Graham · published Aug 2013

The biggest component in most investors' opinion of a startup is the opinion of other investors, which produces exponential dynamics in fundraising interest.

When one investor wants to invest, that makes other investors want to, and so on.

Scope: most investors

source Investor Herd Dynamics

Paul Graham · published Aug 2013

The most important reason investors like you more once you've started raising money is that they're bad at judging startups and so defer to others' interest.

Judging startups is hard even for the best investors; mediocre ones might as well be flipping coins, so they assume others' interest signals a reason.

source Investor Herd Dynamics

Paul Graham · published Sep 2013

The biggest factor in most investors' opinion of a startup is other investors' opinions, so getting the first substantial offer can be half the total difficulty of fundraising.

Once investors start committing it becomes increasingly easy to get more, which is why the first commitment is the hard one; $50k from a well-known VC or angel usually suffices to set things rolling, while friends-and-family money doesn't count.

Scope: what counts as substantial depends on who it's from and how much

source How to Raise Money

Harry Stebbings · published Jul 15, 2024

When a truly great investor brings you into a round, you should not second-guess them.

He questioned Elad Gill on Vanta at seed because he didn't understand SOC 2 compliance and missed the deal.

57:18 20VC: Why We Are in a Bubble & Now is Frothier Than 2021 | Why $1M ARR is a BS Milestone for Series A | Why Seed Pricing is Rational & Large Seed Rounds Have Less Risk | Why Many AI Apps Have BS Revenue & Are Not Sustainable with Saam Motamedi @ Greylock

Mike Maples · published Jan 6, 2025 · hedged

When a top-tier firm like Benchmark or Sequoia wants to invest aggressively in one of your portfolio companies, that is a strong enough signal that you should at least consider exercising pro rata — blindly following them is 'closer to right than not'

His own track record — Demandforce with Benchmark, Twitch with Bessemer, Lyft with Mayfield/Founders Fund/a16z, Okta with a16z, Greylock and Sequoia — shows the top winners were the ones the best firms followed into

Scope: best firms following is not a guarantee; some such companies still failed

10:14 20VC: How To Do a 10x Seed Fund in 2025 | Three Frameworks to Evaluate Startups an Founders | Lessons from Losing Billions Missing Airbnb and Pinterest & Investing Lessons from Charlie Munger with Mike Maples @ Floodgate

Mike Maples · published Jan 6, 2025

When a top-tier investor joins the board of a hot company, the next round is meaningfully de-risked and you should put in as much as you can get

Kassar was so good and so well prepared he'd have raised from anyone he pitched; once Mark joined the board the Series B looked de-risked, and demand was so strong that Iris was trying to buy more the moment their check cleared

Scope: specific to exceptional founders in hot rounds

23:41 20VC: How To Do a 10x Seed Fund in 2025 | Three Frameworks to Evaluate Startups an Founders | Lessons from Losing Billions Missing Airbnb and Pinterest & Investing Lessons from Charlie Munger with Mike Maples @ Floodgate

Jack Zhang · published May 27, 2025

Sequoia's insistence on Tencent joining was defensible rather than a lack of conviction, because at Series A with zero revenue their conviction rested on Tencent and Mastercard becoming the company's two largest customers

A Series A normally requires product-market fit and revenue; here the strategic investors were the intended source of that revenue, so their participation was the substance of the thesis

Scope: specific to a Series A with no revenue and strategic investors as prospective customers

45:53 20VC: The Most Insane Story in Startups: Airwallex: The Angel That Turned $1M into $1BN | The Fund That Pulled a Term Sheet & Lost $1BN | Rejecting Stripe's $1.2BN Offer | Scaling to $1BN in Revenue & 100% YoY Growth for 8 Years with Jack Zhang

Paul Graham · published Aug 2008

Investors influence each other indirectly through founders: interest from many investors raises a founder's confidence, and few VCs are immune to confidence even if some are immune to buzz.

Confidence produced by investor interest makes founders much more attractive to investors.

source A Fundraising Survival Guide

Paul Graham · published Aug 2013 · hedged

The main vector by which news of fundraising success spreads among investors is probably the founders themselves, whose increased confidence investors are quick to sense.

Most investors are good at reading people even if clueless about technology, and founders can't remain poker-faced.

Scope: main vector is probably

source Investor Herd Dynamics

Paul Graham · published Aug 2010

The lead-investor, fixed-size round persisted as a disguised way for investors to say they'd only invest if others did, because most investors can't judge startups themselves.

Most investors rely on other investors' opinions; crafty ones achieve the same contingency by leading a fixed-size round while supplying only part of the money, creating deadlock founders can't afford.

source The Future of Startup Funding

Paul Graham · published Sep 2010

Old-fashioned fixed-size equity angel rounds take weeks to raise because angels deadlock waiting for someone else to commit first.

Angels behave like bicycle sprinters riding slowly at the start so they can follow whoever breaks first.

Scope: fixed-size equity rounds with multiple angels

source High Resolution Fundraising

Harry Stebbings · published May 8, 2024

Social validation in early rounds is dangerous because a trivially small check from a large fund manufactures an artificial premier-brand signal that other investors follow

$5M is coffee money to a billion-dollar fund, but a CPO angel then writes $50k just because that fund is in, and the round suddenly looks like an A-star deal built from nothing

19:43 Small checks from big funds manufacture false brand signals that others follow

Paul Graham · published Aug 2010

Investors who won't invest unilaterally will be pushed to the back of the line and will therefore have lower returns.

Startups will go to them only to fill mostly-subscribed rounds, and since hot startups tend to be oversubscribed, being last means missing hot deals, which correlate with success.

source Investors who wont invest unilaterally get pushed to the back of the line and earn lower returns

Paul Graham · published Sep 2010 · hedged

Fixed-size multi-investor angel rounds persisted not because of investor collusion but because angels and their lawyers unthinkingly imitated VC series A rounds.

In a series A there is usually one big investor who is unequivocally the lead, so a fixed-size round with a lead makes sense; the more investors in a round, the less sense a single price makes.

source Fixed size multi investor rounds emerged from unthinking imitation of vc series a structure not collusion