Silicon Valley investors tend to box start-ups into "deeply misleading" categories and trends — most of which are just buzzwords, said technology investor and Trump adviser Peter Thiel.
Today, Silicon Valley is focused on self-driving cars and artificial intelligence, while a few years ago the buzz was around big data and cloud computing, Thiel said.
Thiel said once something is a "trend," that means others have already identified it, so it's unclear what is innovative about it. When an investor gets a pitch with a lot of buzzwords, it's like a "tell" in poker that the company is not unique, Thiel said.
"If you hear these things, you should think fraud, and you should run away as fast as you can," Thiel said at the CERAWeek by IHS Markit conference in Houston.
While investors often look for "categories" to invest in, Thiel said a lot of very successful companies are in a category of one.
Facebook, for instance, is often put into the "social" category, Thiel said Tuesday night. But Thiel, who was one of the first investors in the company, suggested another explanation for Facebook's success.
"Maybe what Facebook really cracked was real identity and how to bring that onto the internet," said Thiel, co-founder of PayPal and author of the start-up book "Zero to One."
"It was not like a 'Shark Tank' pitch meeting where it was somehow this perfect pitch," Thiel said of meeting Facebook's Mark Zuckerberg. "It was just the perfect company. I think you have a perfect pitch when you have a bad company.... And sometimes a perfect company doesn't need to have a terribly good pitch. So we were going to invest no matter what happened and we did."
— Reporting by Harriet Taylor, written by Anita Balakrishnan.