Never outsource your diligence

Following someone else into an investment is like putting your life savings into a penny stock because your friend told you it was a “sure thing”. There’s one rule you need to know when it comes to making your own angel investments:

Never, ever, ever outsource your diligence…

You can’t rely on the opinions of friends, VCs, co-investors, or other founders to do your diligence for you. The best investments are the ones you make after you’ve done your own research, making a decision based on first principles.

Some of the worst investments that I made early in my career happened because I followed someone else into a deal or relied on someone else’s homework. In those cases, I respected the person and trusted their instinct. But, I didn’t have the proper first-hand knowledge about the company, founder, or market.

It’s easy to get caught in the trap of assuming that someone with a lot of conviction knows something you don’t. The only way to avoid that is to do your own research and, more importantly, form your own opinions.

A good rule of thumb is this: If you can’t come up with a valid list of reasons why you *shouldn’t* invest in a deal, you haven’t done your diligence.