When a market is deemed 'hot' investors will flock to it regardless of whether or not they understand the companies or the market. This means that your best bet for finding funding usually lies in a market and/or technology that is poorly understood so you can be an 'expert'. If your proposition is easily understood then the decisions will be more rational than if they're hard or even impossible to be understood in a short time-frame.

It's sad, for sure but there is a reason they call it 'dumb money'.

As for YC, just about any company in a YC batch is deemed 'hot' regardless of whether or not the follow on investors think those companies are great they're too afraid to miss the boat and this tends to YC being used as a stamp of approval.

The pressure is high and competition is fierce, great for the start-ups!

It's a bit like an auction, if there are many possible buyers for an item it's easy to get carried away and so people end up investing in companies they might otherwise not invest in, or to invest on terms they normally would not accept. It's one of the reasons why YC is so sought after, once you're 'in' you instantly increase your chances of getting follow on funding on terms favourable to you, the start-up through some source.

Certainly yes, but it usually takes longer than 3 minutes to figure stuff out. What I really need is an hour at least with a startup 1 on 1 to know if I'm really interested. But like I said above, that doesn't scale with so many companies and investors. So you have to trust your instincts, but there's often a herd mentality as investors talk to each other and try to use those signals to help them.