Almost every four years around this time of year, Americans are glued to the results of the Iowa Caucuses and how they are dividing up their votes. From NPR to CNN to The Washington Post, journalists and talking heads manufacture excitement. They hype up the importance of the results and pontificate on what a candidate’s place in the caucuses means.
How good are Iowa Caucus goes at picking a Democratic Presidential candidate who will also win the Presidency?
Not very good.....
The LA Times released this graphic along with their report on how New Hampshire has done when selecting Democratic Presidential candidates.
Investing in startups by investors can often be akin to the hyped up importance of Iowa Caucuses by the media. While all investors would hate to admit this about themselves, many of us would state that we know a ton of bandwagon investors. They’ll invest only when an investor they trust invests. They’ll rely on due diligence performed by another group to form the foundation for their own. The lists goes on, but every investor knows that the hype around a particular sector (3D printing, Blockchain, etc) can cause valuations to rise dramatically. More importantly, a cooling of the hype around a particular sector can create a dearth of investors regardless of how good the business is.
So this means that if you are raising capital, you need to be aware of the trends. Know the hype words. Know what will turn an investor off.
If you’re an investor, look out for those hype investments by examining what everybody is investing in and the reasons why they are investing.
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