I sometimes get invited to participate in deals in areas I don’t understand well — like biotechnology. In almost all these cases, the science is over my head.
So I generally don’t invest in startups that are in complex areas (for me). However, there are certain investors who I respect enough that if they’re involved in the deal, then I might be willing to participate.
For example, Jenny Rooke runs one of the best biotech syndicates on AngelList. I passed on a deal she invited me to around 5 years ago called Caribou Biosciences. Caribou does CRISPR gene editing. I didn’t understand it, so I passed on it. But one of the founders of Caribou just won a Nobel Prize in chemistry for her work on CRISPR. Whoops.
I now respect Jenny’s ability to pick biotech startups so much that I always take a close look at deals she’s involved in. I would participate more often — but the minimum investments are generally more than I prefer to invest per deal.
So my advice is to avoid deals in areas you don’t understand, EXCEPT for when you respect the co-investors or syndicate lead enough to take a chance on them. I do think it’s OK to invest in a deal you don’t understand fully in these cases. If you’re investing alongside an absolute all-star who understands the science, it’s OK to take a shot.
Just be prepared to see a higher-than-usual failure rate in areas like biotech. These are generally home runs or zeros — there’s not much in-between.