One simple way billionaire investor Peter Thiel identifies game-changing startups

Peter Thiel is one of the most successful VC investors in the world.

He's most famous for his early investment in Facebook, but he also owns a stake in many startups worth billions of dollars, like Palantir, Stripe, and SoFi.

How does Thiel seem to find fast-growing startups so easily?

One good rule of thumb: look for startups that can't be articulated in the right words.

Thiel shared his thinking in an interview with Keith Rabois at this year's KV CEO Summit, hosted by VC firm Khosla Ventures. The event took place in July but the video of the interview was posted earlier this week.

"I think in some ways the really good companies often couldn't even be articulated...we didn't quite have the right words. Or maybe they were articulated but were articulated in terms of categories that were actually misleading," Thiel said.

That means the startup's idea has to be so new that it's not easily understood by everybody. For example, Thiel said most people called Google just another search engine, when in fact, it was the "first machine-powered" search engine. Even Facebook, he says, was called just another social network, when it was actually a company that "cracked real identity" online.

Thiel added the same thinking goes the other way: avoid startups that use too many buzzwords.

So if a startup describes itself with trendy words like big data, cloud computing, or software-as-a-service, it's time to run away.

"I'd often said when you hear those words, you need to think fraud and run away as fast as you can," Thiel said. "It's like a tell that you're bluffing, that there's nothing unique about the business."

You can watch the full interview below: