Brian Nichols is the co-founder of Angel Squad, a community where you’ll learn how to angel invest and get a chance to invest as little as $1k into Hustle Fund's top performing early-stage startups

Most angel investors fail before they even start. Not because they pick bad companies, but because they fundamentally misunderstand how early-stage investing actually works.

I've watched hundreds of first-time angels blow through their capital, convinced they could beat the odds with smart picking and careful analysis. 

The game isn't what they think it is. Elizabeth Yin from Hustle Fund puts it bluntly: "One of the biggest mistakes new investors make is thinking they can really pick well and put a big chunk of cash on one company. Don't try to pick a company. Select a portfolio."

Let's break down the five mistakes that kill angel portfolios and what to do instead.

Mistake 1: Betting Too Much on One Company

You meet a founder who seems brilliant. The product makes sense. The market looks huge. You're convinced this is the one, so you write a $50,000 check instead of five $10,000 checks.

But, most startups return zero. Not because founders are bad or ideas are stupid, but because finding product-market fit is legitimately hard. Even experienced founders with money and great networks struggle. The stats don't lie: the majority of your investments will return nothing.

Portfolio construction matters more than picking ability at the early stage. If you invest in 100 companies over time, you need your winners to cover all your losses plus generate returns. 

That means spreading your bets, not concentrating them. Start with smaller checks across more companies. $1,000 checks work fine when you're learning. The goal is getting reps in, not pretending you've got some magical ability to spot the next unicorn.

Mistake 2: Ignoring the Math of Returns

New angels get excited about 2x or 3x returns. That company you backed at a $5 million valuation just got acquired for $15 million. Congratulations, you tripled your money!

Except that's not good enough.

Early-stage investing requires 100x outcomes on your winners. Not 2x. Not even 10x. You need massive outcomes because of how dilution works and how many companies will return zero. After three rounds of funding, you'll typically be diluted by about 50%. So if you got in at $5 million post-money and the company exits at $500 million, you're looking at roughly 50x after dilution.

This changes everything about which companies you should back. If you invest at a $50 million post-money valuation, the company needs to exit for $5 billion or more to hit those returns. Is that realistic? Maybe in a frothy market. But it's a much tougher bar to clear than most people realize.

Mistake 3: Skipping Your Homework on Portfolio Size

You need to invest in enough companies to diversify away single-company risk. For beginners, that means a larger portfolio, not a concentrated one. Hustle Fund's approach emphasizes this: diversification helps mitigate downside risk while giving you the reps to actually learn how to invest.

If you're diversifying across 100 companies at $1,000 each, you need $100,000 deployed over 5-10 years. That's $10-20,000 per year. If you don't have that kind of budget, angel investing might not make sense yet. Or you need to adjust your expectations and invest even smaller amounts while you learn.

The concentrated portfolio strategy makes sense once you actually know what you're doing. Until then, you're just gambling.

Mistake 4: Thinking You Can Pick Winners Without Deal Flow

Most new angels have the same problem: no deal flow. They might see a handful of companies per year, often through random connections or platforms. Then they try to make investment decisions based on this tiny sample size.

This is like trying to get good at poker by playing five hands a year. You need volume. You need to see hundreds of companies to start building pattern recognition. You need to understand what makes teams focused versus scattered, what customer acquisition costs should look like, what actually constitutes traction.

Team up with people who already have deal flow. Find other angels or small funds who will let you tag along. Yes, you'll sometimes disagree with their picks. That's fine. The point is exposure. You're building your decision-making framework through practice, not theory.

Mistake 5: Playing Short-Term Games in a Long-Term Business

Angel investing takes years to play out. A company you back today might not have a liquidity event for 7-10 years. But new angels treat it like day trading. They get impatient. They ghost founders when things get hard. They damage relationships over small disagreements.

The founders you turn down today might build something massive in five years. The investors who ghost you might need an intro from you later. The ecosystem is smaller than you think, and people remember how you treat them.

Play the long game. Be helpful even when you don't invest. Maintain relationships. Honor your commitments. When you tell a founder you'll invest at a certain valuation, stick to it even if the round gets oversubscribed. Your word needs to mean something, because investors talk. A lot. 

As Hustle Fund's Elizabeth Yin says: "I've seen investors not touch a deal because a founder screwed over one investor. It's just not worth it to do business with people who aren't able to follow through on what they say."

What Actually Works

The winning formula isn't complicated, but it requires discipline.

Write smaller checks across more companies. Get your 100 at-bats. Build real deal flow by being genuinely helpful to founders and other investors. Think in decades, not quarters. Focus on multiples, not ownership percentages.

Most importantly, treat this as a learning process. Your first 20 investments will probably be mediocre. That's fine. You're buying education. Just make sure you can afford the tuition.

If you're serious about learning angel investing the right way, Angel Squad offers access to vetted deal flow, education from experienced investors, and a community that can help you avoid these common mistakes. Because the difference between angels who succeed and angels who fail usually comes down to whether they learned the fundamentals before they started deploying serious capital.