Billionaire entrepreneur Peter Thiel’s story captures the power of angel investing. In 2004, he invested in Facebook, Meta Platforms Inc., and later earned over $1 billion from that investment. He has also invested in two of the most valuable unicorns globally: Stripe Inc. and SpaceX. He also recognized Vitalik Buterin’s talent early and provided him with the funds to develop Ethereum, the world's second-largest cryptocurrency.

Distinguishing future mega-successful projects from a sea of potential candidates is significantly aided by Thiel's experience in building companies. He co-founded PayPal Inc., which led to a substantial payday when it was sold to eBay. In 2003, Thiel founded Palantir Technologies, a tech startup that later received backing from the CIA. His stake in Palantir is valued at approximately $2.6 billion, contributing to his net worth of an estimated $9.6 billion.

Unlike many successful angel investors, Thiel has not kept his strategies secret. Instead, they are openly available for anyone interested in applying them. This openness is particularly significant now, as crowdfunding platforms allow investments in startups with as little as $250. In his book "Zero to One," Thiel reveals how he identifies signals indicating a company's potential to reach a valuation of several billion dollars.

The 10x Rule 

One of Thiel's most significant contributions to the investor community is his 10x Rule, which states that "a company should start when they have a technology that's 10x better than their closest competitor." Essentially, a company should aim to create an impact that is 10 times greater than what is available in the market. For instance, if obtaining an answer through ChatGPT is 10 times easier than using Google, it becomes clear which platform might have the upper hand in the future.

Go Where There Are Network Effects

“Network effects are where the value is driven by the fact that you have a number of other people inside the network [using your product or service] at a given time. Network effect businesses are extremely valuable,” Thiel explains in his book “Zero To One.”

Scaling from 1 million to 2 million users is generally easier than growing from zero to 1 million. For a startup, the most effective strategy is often to address a niche problem for a market with potential for expansion. A prime example of this approach is Facebook's model.

Design With Economies Of Scale In Mind 

Economies of scale allow a company to grow swiftly while maintaining stable fixed costs and overhead. Tech companies are among the greatest beneficiaries of this phenomenon, as they can add new customers without incurring fixed costs. The app MyRadar uses this strategy to boost its revenue, and you can invest in the company behind it — ACME AtronOmatic. 

Start With A Small Market 

“You can define a monopoly as having a large market share. So how do you get a large market share as a startup? Because every startup necessarily starts very small. The answer is that you have to start with a small market,” Thiel writes in his book. 

Amazon.com Inc. started as an online bookstore and evolved into the go-to platform for almost anything. This progression saw Amazon first establishing itself in a smaller market and gradually expanding into larger markets. Today, its reach covers a vast array of products and services, leaving almost no market untouched. 

Bottom Line

Thiel has had flops in his career, but these are overshadowed by his successful investments. Investing in startups is risky, but when it pays off, the returns can be staggering. Thiel’s returns on his 2004 Facebook bet add up to 219,900%. Before 2016, regular investors couldn’t invest in startups before they went public. But now you can, and through crowdfunding platforms, it takes as little as $1,000 to create a portfolio of startups and diversify as much as you can. 

Click here to explore a selection of startups whose shares you can buy today. 

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