Every syndicate has a different approach to selecting deals. Here are the components of my approach.
I'm a Generalist: I invest more like a generalist than a domain specialist. Although domain-focused investing works for some investors, there are strong reasons why I don't restrict my own investments to a specific domain. Top thinkers in the investment world (Paul Graham, Peter Thiel, Chris Dixon and many more) have repeatedly pointed out that the best startup companies initially don't even look like companies! They look like toys, or hobbies. They look like bad ideas. Often it's not clear what industry you'd even classify them into; many of the most disruptive ventures exist at the intersection of various industries. (Is Uber just a limo company? Or is it a taxi company? Transportation company? Ridesharing company? Delivery and logistics company? On-demand employment company?) The better approach is to set industry assumptions aside, and simply start from first principles with each company: assess what it does now, what value it provides, whom it serves, and whom it could serve. The very best startups create new markets, or even completely new industries.
I Look for Deep Disruption: I invest primarily in companies with traction signals indicating that a deep-disruptor technology is at play. The rise of companies with billions of users has certainly borne out Marc Andreessen's observation that "software is eating the world". However, I believe that many angels, VCs, journalists etc. fail to appreciate that technological development isn't merely unfolding; it's ACCELERATING. The time it takes startups to reach hundreds of millions of users, and/or billion-dollar valuations, has dropped from a decade to a half-decade to its current level of around twenty months. No industry will be immune to the onslaught of digitization. My approach is to find companies that are taking unsexy, tech-lagging industries and dragging them into the modern era.
I Love Traction: The key phrase from the Disruption paragraph above is "traction signals". My interest is rarely piqued by startups that describe the disruption they "might" create; I'd rather go after the startups that are ALREADY disrupting. The two hallmarks of disruptive traction are a 10x improvement on status quo solutions (i.e. not just an incremental improvement); and an exponential growth curve (ideally in revenue, but could also be in users, impressions, etc.). There are plenty of other angels who like to invest at the pre-traction stage. But I've looked at the valuation patterns in today's venture investing market, and I'm convinced that an investment opportunity with strong early traction for, say, a $6M valuation is a vastly better proposition than a deal that's pre-traction (and therefore has unknown prospects) for, say, a $3M valuation. It's worth paying a premium for a company's equity, in exchange for concrete evidence that the market loves what that company is selling.
I Invest in What I Understand: Warren Buffett was right; investing in business models that one doesn't really understand is asking for trouble. You won't catch me putting the syndicate's money into yet another startup claiming to "leverage proprietary algorithms to deliver deep Big Data insights that drive better ad spend targeting and customer engagement". It may be a great company - but if I can't wrap my mind around how they're actually doing it, it's not for me. Conversely, I've had great success to date investing in startups with surprisingly simple business models - often with brick-and-mortar, hardware, or other "real-world" dimensions to their business.
**Anyone considering an investment in one of my syndicates should understand that these investments represent absolute risk, and there is a meaningful risk that they can lose all their money. There is no guarantee of a "soft landing" or acquisition if things do not go as planned, especially at the stage we are investing. In addition, there is no guarantee that, even in a successful company, there will be opportunity for liquidity for the shares represented and an investor should be prepared to have their capital committed for ten or more years without liquidity.**