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

The normal VC model, as most of us understand it, goes like this: invest millions of dollars across a portfolio of companies. Hope that a small fraction provide 100x returns. Accept that 90% of the others will not return anything at all.

It works. The power law is real, and the biggest venture funds in the world have gotten very wealthy following this exact playbook. But it is not the only way to build wealth through private market investing.

There is a growing number of investors who think about it differently. Rather than chasing a few massive returns, they optimize for a higher probability of success with lower multiples from companies that are already validated.

The Pegasus Model

The term comes from the idea that not every valuable outcome needs to be a billion-dollar unicorn. A "Pegasus" is a company that generates strong, consistent returns without needing to achieve the kind of exponential growth that VCs require.

Take Myo Impact Company, a fund and management company focused specifically on healthcare businesses. Rather than investing in pre-revenue health-tech startups hoping one becomes the next Veeva Systems, they invest in (or sometimes outright purchase) healthcare-related companies that are already generating revenue. These can range from medical supply companies to primary care offices to surgery clinics.

The key difference: these are already validated businesses generating real cash flow. Myo Impact does not just inject capital. They bring hands-on support to increase profit margins, build out teams, and improve operations.

The returns are not 100x. But the probability of returning capital is dramatically higher. And for many investors, that tradeoff makes sense.

Why This Matters for Angel Investors

The traditional VC model works well for large funds that can absorb a high failure rate because their winners are enormous. But individual angel investors have different constraints.

If you are deploying $100,000 across your investing career, losing 90% of it while hoping for a single moonshot is a tough pill to swallow. It is the mathematically correct strategy if you have enough at-bats, but not everyone has the stomach (or the capital) for that ride.

The Pegasus approach offers an alternative. Instead of swinging for 100x on pre-revenue companies, you can invest in businesses that have already proven demand and focus on helping them grow from, say, $1 million in revenue to $5 million. The multiple is smaller, but the probability of getting there is much higher.

Elizabeth Yin has talked about companies that find product-market fit but cannot achieve venture-scale growth rates. These are real businesses that make real money for founders. Some of them exit at $25 million or $50 million. That is not interesting to a VC fund that needs billion-dollar outcomes. But for an angel who put in $5,000 at a $2 million valuation, a $25 million exit is a 12x return. That is a great outcome.

The Geographic Angle

This alternative model is particularly interesting in markets outside traditional tech hubs.

The Myo Impact ecosystem, for instance, focuses on businesses in Minnesota, Montana, North Dakota, South Dakota, and Wyoming. According to Carta, less than 0.8% of all VC funding went to startups in those five states in 2022.

It is hard to start a business in the Midwest, partly because there are not as many resources to help entrepreneurs succeed. Fewer investors, fewer startup programs, fewer networks. Entrepreneurs from these areas usually either move to a tech hub or let their ideas die.

But that lack of competition is exactly what creates opportunity for a different investment model. Less competition means lower valuations, less crowded markets, and more room for hands-on investors to add value.

Building a Blended Strategy

This is not an either/or decision. The smartest angel investors we know run a blended approach.

They allocate a portion of their capital to traditional early-stage bets where the power law applies. Small checks into pre-seed companies, diversified across many bets, swinging for the outliers. And they allocate another portion to lower-risk, higher-probability investments in validated businesses where the returns are more modest but more predictable.

The exact split depends on your risk tolerance, your capital, and your time horizon. But the point is that "startup investing" does not have to mean one single strategy.

There is more than one way to be an investor. If you want to explore the traditional angel investing side with access to Hustle Fund's deal flow and a community of 2,500+ members who evaluate both high-risk and validated opportunities, Angel Squad is worth a look. Check it out at Angel Squad.

Not every great investment needs to be a unicorn. Sometimes the Pegasus delivers just fine.