Investing is a lot like dating.

Stay with me.

Imagine you live in a small town. You’re single, and looking for a relationship. So you mosey down to the local watering hole and grab a seat at the bar.

Three prospective partners walk in the door:

• the owner of the local book store
• an unsuccessful professional gambler
• an unemployed rancher

The bookstore owner is the clear stand-out. She’s cuter, funnier, and more charming than the other 2. And she’s got an actual job. So you date. Within a year, though, things go south. Turns out this person is a bit of a drama queen, spends money extravagantly, and often forgets to text you back.

You’re bummed – after all, you’re looking for a relationship, and this person is clearly the best candidate in town. Who are you supposed to date now? So, you move to a big city. You find a local neighborhood bar and order a drink. Within an hour, 30 prospective partners have walked in the door:

• a children’s book illustrator
• a franchise owner
• the director of a national non-profit
• a clothing designer
• a teacher
• a landscape architect
• a mechanic
• a digital marketer
• etc etc etc

You quickly realize that the bookstore owner you dated in Small Town, USA wasn’t actually that great. But compared to the other single folks you met that night, she looked amazing. With 30 potential partners in front of you rather than just 3, you can easily compare your options and pick the best one.

Angel investing is a lot like this process.

When you only see 3 deals a year, you’ll end up investing in the best of those 3 startups. And there’s a good chance that that company isn’t differentiated enough, or can’t find product/market fit, or has an impossibly high burn rate.

But when you see 100 deals a year, you'll find a company with a much higher likelihood of breaking out. You’re able to compare a much larger number of data points and find a startup with A) a great team B) solving a real problem C) in a non-competitive market.

A startup that is the equivalent to the kind of person you bring home to meet your parents. This is the power of deal flow.

The question is…

How do you find great deal flow? Two options that consistently work well:

1) join a syndicate (or 2)
2) mentor startups at an accelerator

In both cases, you’ll end up seeing 3+ companies a month. Even if you don’t invest in any of them, you’ll start to collect data points about what makes a company stand-out.

You’ll quickly start to recognize patterns, like:

• does this team ship quickly?
• is the founder obsessed with understanding her customers?
• is this a massive problem that needs to be solved?
• do customers stick around?
• is it insanely hard to acquire customers because there’s so much competition?

TL;DR

Most startups look good in isolation. It’s only when comparing startups to other startups that you’re able to identify which ones have long-term potential.