To paraphrase Jim’s answer: To paraphrase Jim’s answer: Because it wanted as much equity in the company as it could get. Ultimately the entrepreneur has final say on new investors (or lack thereof), but Sequoia didn’t fight for a minority investor on the Series A or outside lead on the company’s Series B or Series C rounds. If WhatsApp needed more capital, Sequoia was more than happy to write the check solo.

This may sound obvious, but it really is the exception in venture capital circles.

In almost every other case, a company like WhatsApp would have had multiple investors by the time Facebook came calling. For example, Facebook itself had eight institutional investors by the time it turned four-years-old. Same with Twitter (TWTR). Even Sequoia-backed Google (GOOG) had another major VC backer in Kleiner Perkins.  

Sometimes the multiple investors are a reflection of capital requirements. But, most often, it’s rooted in the concept of social proof — a validation protocol that has the effect of making risk look…well, less risky. After all, how bad could an investment be if someone else is willing to do it too?

For example, remember what Institutional Venture Partners wrote about one of its reasons to invest in SnapChat last year?

Follow the Smart Money – Snapchat’s early investors include Benchmark Capital and Lightspeed Venture Partners, two of the top venture capital firms in Silicon Valley. We’ve worked with both firms previously and can’t find enough good things to say about each. IVP co-invested in Twitter along side Benchmark in February 2009. That investment has proven to be one of the most successful in the history of our firm. We also co-invested with Benchmark in MySQL, which Sun Microsystems acquired in 2008 for $1 billion.

Sometimes social proof manifests itself in seed-stage rounds, particularly via online platforms like AngelList. Sometimes it’s in early-stage deals, either with co-lead investors or a single lead who brings in other institutions for smaller stakes. But, most often, it’s in follow-on rounds like Series B or Series C. Here is how venture capitalist Rob Go recently explained it:

Most VC’s buy their ownership in a company relatively early.  They would like to increase it over time in their winners, but they also like getting external validation that they have made a good investment by getting another firm to mark-up their investment. Basically, this means that another VC invests at a higher valuation, making the early VC seem really smart and able to show unrealized gains. This tends to make LPs happy and make the lead partner look good among his or her colleagues.

But Sequoia didn’t fall into this trap on WhatsApp. It saw something great, kept everyone else away and is now reveling in the largest-ever sale of a VC-backed company. This has got to cause other VC firms to take notice. Right?

To be sure, I’m not the first person to suggest that social proof deserves to be on the run. Venture capitalist Hunter Walk wrote that very thing in this space nearly two years ago. But it’s one thing to make investment strategy arguments, and quite another to keep reading about the courage of someone else’s convictions.

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