Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

Here is a common scenario for angel investors. You see that Andreessen Horowitz or Sequoia is leading a seed round. The FOMO kicks in hard. "If they are investing, it must be a great deal, right?"

Actually, no. Not at that stage.

The data shows something that surprises most people. Following high-signal investors into early-stage rounds is not correlated with better outcomes. But following them into later-stage rounds? Highly correlated.

This distinction matters a lot, and understanding why it works this way will fundamentally change how you evaluate deals.

The Product-Market Fit Problem

Everything comes back to product-market fit. It is the number one challenge every startup faces, and it is what makes early-stage investing so different from later-stage investing.

Product-market fit, in its simplest form, is when a company builds a product that solves a problem people want to pay for, and the company can find those customers repeatedly, sustainably, and at scale. There is a lot packed into that definition. And here is the critical point: most companies do not achieve real product-market fit until at least Series B, sometimes later.

Series A companies may have some semblance of it. But generally not all the components. They have not proven they can scale customer acquisition yet. The unit economics are still being figured out. The retention picture is incomplete.

Elizabeth Yin has observed that even with clear customer interest and a working product, the customer acquisition piece is what trips up most companies. You can have a product people love. But if you cannot find and convert those customers in a repeatable, scalable way, you do not have product-market fit. You have a product that a few people like.

Why Early-Stage Signal is Basically Noise

Here is what this means for the "follow the smart money" strategy.

At the seed stage, nobody knows which companies will find product-market fit. Not the founders. Not the angels. And not even the most prestigious VCs in the world. The failure rate is still extremely high at that stage, regardless of who is writing the checks.

When a brand-name VC leads a seed round, they are making an educated guess based on the team, the market, and the idea. Those are all valid inputs. But they are guessing about whether this company will eventually find product-market fit. And even the smartest investors in the world get that guess wrong most of the time.

The brand name on the cap table does not reduce the fundamental risk of pre-product-market-fit companies. It might mean the deal had better terms or the founder is well-connected. But it does not mean the business will work.

When Signal Becomes Reliable

At Series B and beyond, the picture changes dramatically.

By the time a company reaches Series B, they have typically found product-market fit. They have proven they can acquire customers at scale. They have shown that their unit economics work. They have demonstrated sustainable growth over multiple quarters or years.

So when a top-tier VC leads a Series B round, they are not guessing about product-market fit. They are evaluating data. Real revenue, real growth rates, real retention numbers. The hard part is behind the company. Now it is more about execution, market expansion, and whether the price is right for the growth trajectory.

The evaluation at this stage is fundamentally more reliable because you are analyzing existing data instead of predicting the future. The company is a going concern. The question shifts from "will this work?" to "how big can this get?"

What This Means for Your Angel Strategy

If you are looking at later-stage deals, Series B and beyond, following high-signal investors makes a lot of sense. Those brand names mean something at that stage. The diligence has been done. The company has proven traction. You are buying into something real.

But if you are looking at seed-stage deals, do not let FOMO drive your decisions. Sure, consider the perspective of experienced investors. Their pattern recognition has value. But understand that even with the best investors involved, the failure rate is still very high.

Elizabeth Yin has been clear on this: finding product-market fit is a lot of luck mixed with skill. Successful serial entrepreneurs struggle with it. That is why at Hustle Fund, the focus at pre-seed and seed is on diversification, lower valuations, and maximizing shots on goal rather than trying to follow the "right" investors.

Your seed-stage diligence should be based on your own evaluation of the team, the market, and the unit economics. Not on who else is on the cap table. At Angel Squad, members learn to do that independent evaluation using frameworks developed from Hustle Fund's 600+ investments. Explore it at Angel Squad.

Save your "follow the smart money" instinct for when the money actually has something concrete to follow.