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

I watched someone lose $50,000 on their first angel investment. Not because the startup failed (it actually got acquired), but because they didn't understand liquidation preferences. The Series B investors had 2x participating preferred shares, and when the company sold for $40 million, early angels got nothing. Later-stage investors took the entire proceeds.

This happens all the time. New angels treat investing like supporting friends rather than making calculated bets. They skip diligence. They chase hype. They structure deals poorly. Then they wonder why their portfolio returns zero even when half their companies succeed.

Angel investing communities exist to prevent exactly this. Here are the seven most expensive mistakes they help you avoid.

Mistake 1: Investing Without Understanding Terms

Most first-time angels look at valuation and check size, then sign whatever the founder sends over. They don't realize that a $5 million cap with a 1x non-participating liquidation preference is dramatically different from a $5 million cap with a 2x participating preference.

That difference determines whether you make money or get wiped out in an acquisition.

Communities teach you how to read term sheets. At Angel Squad, members learn what matters in early-stage deals through sessions on cap table dynamics and portfolio construction. You learn why pro-rata rights matter, how down rounds affect your shares, and which terms are worth negotiating versus which are standard.

This isn't theoretical. Angel Squad members review Hustle Fund's actual deal terms and ask GPs why they accepted certain structures. That real-world context helps you spot red flags before you write a check.

Mistake 2: Treating Friends' Startups Like Charity

Your college roommate starts a company. They ask if you want to invest. You say yes because saying no feels awkward. You invest $10,000 without proper diligence because you don't want to offend them by asking hard questions.

Two years later, the company shuts down. You learn they burned through cash on marketing that never converted. You never saw financials. You never understood their customer acquisition cost. You just trusted your friend.

This is not investing. This is donating money and calling it an investment.

Communities give you frameworks to evaluate any deal, including ones from friends. When you know what questions to ask and what metrics to review, you can have honest conversations about whether a startup actually makes sense as an investment. If it doesn't, you can explain why using objective criteria rather than your gut feeling.

Angel Squad members practice this by reviewing live pitches together and discussing what works and what doesn't. You learn to separate "I like this person" from "this is a good investment opportunity." It's one of the most valuable skills you'll develop.

Mistake 3: Building a Portfolio of Only 3-5 Companies

New angels think they can pick winners. They invest big chunks in a few companies they love, figuring that concentrated bets yield concentrated returns.

The math doesn't work. Even experienced VCs see 70-80% of their investments return zero or minimal gains. Your ability to pick winners isn't better than theirs. You need diversification.

A good rule: You need at least 20-30 companies in your portfolio to see consistent returns. One or two winners need to carry the entire portfolio. If you only invest in five companies and they all fail, you're done.

Angel Squad makes diversification accessible by lowering minimums to $1,000. You can build a 20-company portfolio with $20,000 instead of needing $500,000. Members invest in pre-seed deals from Hustle Fund's pipeline, seed-stage opportunities in specific verticals, and even late-stage secondary positions in companies like Anthropic and Webflow.

That range of stages and sectors gives you diversification you couldn't build solo.

Mistake 4: Skipping Due Diligence Because You're Excited

You see a pitch that solves a problem you personally experience. The founder is charismatic. The demo looks polished. You get FOMO watching other investors commit. You wire money without checking references, reviewing financials, or understanding the competitive landscape.

Three months later, you learn a competitor raised $50 million and has 10x the traction. Or the founder has a pattern of abandoned projects. Or the unit economics don't work at scale.

All of this was discoverable. You just didn't look.

Communities teach you to slow down. Angel Squad runs sessions specifically on what to check before investing: technical diligence for deep-tech companies, reference calls with former colleagues, market sizing for TAM analysis, customer interviews to validate demand.

More importantly, communities give you peers to discuss deals with before you commit. When you can ask other members "Am I missing something here?" before writing your check, you catch blind spots you didn't know existed.

Mistake 5: Investing in Hype Instead of Fundamentals

When everyone's talking about AI or Web3 or whatever's trendy, mediocre startups can raise money just by using the right buzzwords. New angels chase these deals because they feel like they're missing out.

Then the hype dies. The startup had no real business model. The team was executing poorly. The market wasn't actually there. But you invested because everyone else was.

Elizabeth Yin from Hustle Fund talks about this constantly. She's passed on countless hyped deals that later failed, while making money on boring companies nobody talks about. Communities help you develop taste by showing you both the deals they invest in and the deals they pass on.

At Angel Squad, members see why Hustle Fund passed on 997 out of 1,000 deals each month. You learn to spot the difference between a company riding hype and a company building something real.

Mistake 6: Not Reserving Capital for Follow-Ons

You invest in a company at a $4 million valuation. It does well. Eighteen months later, they're raising a Series A at $20 million. Your ownership is about to get diluted from 0.5% to 0.2%.

You want to invest more to maintain your stake, but you already deployed all your angel capital. You miss the follow-on, and your potential 10x return becomes a 2x return because of dilution.

Smart angels reserve 50-70% of their capital for follow-on investments in their winners. But if you don't plan for this upfront, you'll deploy everything too fast and have nothing left for the companies that actually work.

Communities teach portfolio management strategies that include follow-on planning. Angel Squad members learn how to structure their capital deployment over time, when to double down on winners, and how to think about reserves.

Mistake 7: Investing Alone Without Pattern Recognition

Every mistake I've listed comes down to one thing: lack of pattern recognition. You don't know what good looks like because you haven't seen enough deals. You can't spot red flags because you don't know they exist. You make preventable errors because nobody showed you what to avoid.

Solo angels take years to develop this intuition. They make expensive mistakes along the way. Some never recover.

Communities compress that learning curve. When you review hundreds of deals alongside experienced investors, you develop pattern recognition faster. You see the same red flags appear across different companies. You notice that founders who dodge questions about unit economics usually have bad economics. You learn what "exceptional" actually means.

Angel Squad members review deals from Hustle Fund's pipeline of 1,000+ monthly opportunities. That volume teaches you what matters faster than investing solo ever could. You get the equivalent of 10 years of experience in 12 months because you're seeing condensed patterns rather than discovering them slowly yourself.

The Real Value

Angel investing communities aren't about getting access to deals. You can find deals anywhere. They're about learning to be a better investor so you actually make money on those deals.

The mistakes I listed cost new angels tens of thousands of dollars. Sometimes hundreds of thousands. The right community helps you avoid them for a membership fee that's a fraction of what you'd lose making these errors yourself.

If you're thinking about angel investing, don't start alone. Join a community that's invested in thousands of companies and seen every mistake possible. Learn from their pattern recognition instead of building your own the expensive way.