“A lot of VC’s just want to give us money because we’re in YC. They don’t care about what we’re building.” That was a great founder I spoke with yesterday who’s currently in YC.

It seems insane to me, but a lot of investors operate like this. Team, product, traction, who cares? The only question is, “Who else is investing?”

That is a terrible approach. Let me tell you why…

You Can’t Ask Sequoia for a Refund

Let’s say Sequoia is in the seed round of a company you invest in. You couldn’t possibly get a stronger co-investor.

Two years later, the company goes to zero.

You can’t come to Sequoia and ask them for your money back. So you better make your own decision!

One Data Point Among Many

If a company went to YC or a top firm is leading their seed, that’s great. I don’t discount that information completely.

But it’s just one data point among many. And there are others that are a lot more important.

How good is this team? How fast are they growing? Those factors matter more than any co-investor.

At seed, the big firms make very few investments anyway. I consider the lead more carefully at Series A, an area where the big funds are more active.

When the Co-Investors Are a Little Too Good

If a seed round is really star studded, I actually get a bit nervous. In my experience, early rounds filled with blue chip investors correlate with poor performance. Many top investors have said the same.

How on earth could this be?

Maybe if everyone thinks a startup will succeed, the future that startup is proposing is too easy to imagine. It’s not a radical enough departure from today.

A startup has to bring about radical change in order to make big money. Think staying in strangers’ spare rooms on Airbnb, something I never would’ve done in 1,000 years otherwise.

A Peak Inside My Portfolio

Let’s take a look at the most successful companies in my portfolio so far. How good were the co-investors?

1. $17 million ARR. Party round, lower tier accelerator, one prominent angel and the founder of a unicorn startup. Good co-investors, but it’s not exactly YC and Sequoia.
2. $12 million ARR. A good early stage VC firm, a prominent angel, and a solid accelerator. Good co-investors, but doesn’t knock your socks off.
3. $7 million ARR. Strong accelerator, no one else notable.
4. $6 million ARR. One prominent angel, no one else notable.

What you see here is that the really successful companies may have one or two good investors. But they don’t have a round filled with famous names. And none of these companies went to YC.

One startup in my portfolio had a particularly star studded cap table. One of the best early stage funds in the world led its seed round.

That company is about to go out of business. Out of 31 investments I have, it’s one of the 2 least successful.

Go figure.

Wrap-Up

It’s easy to be wowed by YC, Sequoia, or whoever. But here’s my advice: take it as one data point among many, and make your own decision.

We investors have one mission: turn a dollar into two. If we back strong teams with great products, we can do it.

The rest is noise.

How much value do you place on co-investors?

There will be no blog on Monday for Labor Day. Have a great holiday weekend, everyone!

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