Over the past few years, my angel investing strategy has been to be very selectively aggressive. I would invest relatively large amounts of capital in very few companies and typically sit on the board as well. I believed that my ability to identify unique companies and help them out would lead to outsized returns. Over the past few months, I have fundamentally revised this strategy.

I have had the pleasure of interacting with a large number of angels with numerous investment strategies. Without fail, the companies that succeeded for them were never those they might have expected to succeed the most at the time of investment. Their success as investors most often came down to luck and did not seem correlated with the intensity of the due diligence they had conducted or a priori quality of the management teams they had backed.

Given the hit driven nature of the angel investing business, it’s important for angels to have at least one hit in their portfolio to cover the losses from the duds. Angels who, on average, had invested in less than eight companies lost money on their investments, while those who invested in more than eight companies on average made money on their investment.

By May 2008, I had invested in 6 companies and sat on the board of 4 of them. Since then, given how busy I am with OLX, I have scaled back my existing board involvement dramatically, divided my average investment size by a factor of five and I am now invested in 15 companies. I have not joined the board of any of the new portfolio companies and don’t intend to for future investments either.

I invest mostly in early stage startups at the seed level as I think it’s the least efficient and most fragmented stage of the investing process. Series A rounds and beyond are well covered by venture capital and private equity firms and are much more competitive. I focus on direct to consumer businesses both because I understand the space better and the due diligence is significantly easier to do (why active entrepreneurs mostly invest in consumer internet companies). I also often invest in companies off the beaten path (outside of Silicon Valley and often outside of the US) reflecting a small comparative advantage in international sourcing because of my background.

In the past few months, I added another constraint. Given the likely dearth of venture capital investments in 2009 (why VCs invest less in downturns), I am currently only investing in companies with very low capital requirements that are likely to reach profitability on the seed funding. I also insist on very low valuations (often much lower than $1 million pre-money) to compensate for the likely increase in default rate caused by the lack of funding and potential acquirers.