Spray and pray investing

I came across this post by Dharmesh Shah titled Avoiding Undue Diligence: My Strange Approach To Angel Investing. I was of course intrigued by the title having spent a lot of time building this library of investing insights from venture capitalists and angel investors.

I was surprised to find a nice neat list of investing nuggets laid out on the page like the ones that I extract from the many interviews and blog posts that I find from investors. The surprise of course was what I found after digging into Dharmesh’s advice. He had laid out a very nice spray and pray approach to angel investing.

No follow-on investments I have heard a lot of people advise, but no due diligence? Seriously? Two guys walk into a bar, they make a good first impression and pitch a great idea and your in if your gut says go for it?

This seems a little out of the ordinary and Dharmesh claims as much in his post. What brings it back to the ordinary is if you compare it to a different ordinary. The housing bubble, the internet bubble, you name the bubble and you’ll find many stories like this one in the years leading up to the bubble popping. I am not saying that Dharmesh is going to lose his shirt tomorrow because of his investment thesis. I am saying that the fact he can be so confident in this strategy means that there is a problem. In fact it is a problem that is being raised a lot right now in relation to the housing bubble. The investigations into S&P ratings, the shrinking level of mutual fund due diligence, the list goes on.

So this will be the first piece of angel investing advice that I will consider a lesson in what not to do. I hope that you also avoid Dharmesh’s spray and pray investing.

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