There's a third option: FOMO. They didn't want to look stupid later for failing to invest in case FTX turned out to be the next big thing, so they took a gamble.
But doesnt FOMO-driven action require lack of due diligence? You may be right that it was indeed FOMO, but its not the FOMO that caused the error, it's the lack of DD that comes with FOMO.
I think that's a very good point. Though also think if I was doing a sort of PhD dissertation exploring the different aspects of malfeasance vs. incompetence that FOMO might ultimately be found as some flavor of incompetence. Though also have a dotted line in the tree diagram leading over to some branch of malfeasance as well.
This strikes me as unlikely. A VC does not look stupid for passing on an investment, even one that would've been successful. Do you think 90% of that list "looks stupid" for not having invested in Google? These big name VCs reached their status through vision, extreme due diligence, and of course luck; not from FOMOing into investments.
Based on my experience in SV startups, this is simply not true. VCs pay a ton of attention to what other VCs are doing and do in fact include what other VCs are doing as part of their decision-making process.
Well yes obviously businesses pay attention to what the competition is doing.
And there's no question it's much easier for founders to raise capital, after they've raised capital. But this is because of how our financial system works; it's much easier to loan (exchange for equity) money to someone who doesn't need it, than someone who desperately needs it. It's the same reason a billionaire can take out a loan 100x the size that you could ask for, at under 1/10th the rate.
But you're making a leap here by suggesting that VCs will make an investment and bypass due diligence simply because another VC invested. What I've seen in the startup world is confident founders are more likely to raise money, having received funding makes founders more confident thereby making investors confident, but for any significant sum of money due diligence might be expedited, but not skipped.