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 new angel investors lose money not because they picked bad companies, but because they made structural mistakes in how they approached investing.

These mistakes are predictable, preventable, and expensive.

The twelve costliest mistakes beginners make and how to avoid each one.

Mistake #1: Concentrating Too Early

The Error: Investing $5,000-10,000 in 2-3 companies instead of $1,000 in 10+ companies.

Why it happens: Beginners think they can pick winners. They fall in love with specific companies and bet big.

Real cost: When 1-2 of those concentrated bets fail (which is likely), you've lost substantial capital with no diversification to offset losses.

Correct approach: Make $1,000 investments across 15-20 companies. Accept that most will fail. Rely on portfolio construction, not picking ability.

As Elizabeth Yin, co-founder and GP of Hustle Fund, explains: "Don't try to pick a company. Select a portfolio. One of the biggest mistakes new investors make is thinking they can really pick well and putting a big chunk of cash on one company."

Average cost of mistake: $3,000-7,000 in poor returns compared to diversified approach.

Mistake #2: Investing in Friends' Companies

The Error: Writing checks to friends' or colleagues' startups despite reservations about the opportunity.

Why it happens: Social pressure. Not wanting to seem unsupportive. Mixing friendship with investing.

Real cost: These investments almost always fail because you ignored red flags out of social obligation. You've also made future friendship awkward as company struggles.

Correct approach: Keep friendship and investing completely separate. Be supportive to friends without investing. Save capital for opportunities you genuinely believe in.

Angel Squad's curated deal flow from Hustle Fund's pipeline provides quality opportunities so you don't feel obligated to invest in friends' companies just to participate in angel investing.

Average cost of mistake: $1,000-2,000 per friend investment, plus relationship strain.

Mistake #3: Ignoring Portfolio Construction Theory

The Error: Not understanding how many investments you need for decent odds of success.

Why it happens: Beginners don't study power law returns or portfolio theory. They treat angel investing like stock picking.

Real cost: Portfolios of 3-5 investments have almost no chance of generating good returns. You're essentially gambling.

Correct approach: Build portfolio of 15-20 investments minimum. Understand that 60-70% will fail and you need enough shots on goal for outliers to matter.

Average cost of mistake: Opportunity cost of $5,000-15,000 from poor portfolio structure.

Mistake #4: Moving Too Fast

The Error: Making 10+ investments in first 3 months before developing any judgment.

Why it happens: Excitement about angel investing. Fear of missing opportunities. Impatience with learning process.

Real cost: Your early decisions before pattern recognition develops tend to be worst. Moving too fast means more capital deployed in these weakest decisions.

Correct approach: Spend 6-8 weeks observing before first investment. Make 1-2 investments per quarter, not 10 in a month. Give yourself time to learn between decisions.

As Eric Bahn, co-founder and GP of Hustle Fund, emphasizes: "For beginners, a bigger startup portfolio is better. It helps with diversification and helps you learn and get reps in. Investing requires practice like everything else." That practice requires time between investments to reflect and learn.

Average cost of mistake: $2,000-5,000 in completely avoidable bad investments.

Mistake #5: Skipping Due Diligence

The Error: Investing based on pitch deck without any verification or deeper evaluation.

Why it happens: Laziness. Assuming pitch deck is accurate. Not knowing what due diligence actually involves.

Real cost: You miss obvious red flags that 30 minutes of research would reveal. Team conflict. Inflated traction claims. Poor reputation in industry.

Correct approach: Even for $1,000 investments, spend 30-60 minutes on basic due diligence. Google the founders. Check LinkedIn. Talk to company if possible. Verify major claims.

Average cost of mistake: $1,000-3,000 investing in companies with obvious problems.

Mistake #6: Obsessing Over Valuations

The Error: Passing on good opportunities because pre-money valuation seems too high.

Why it happens: Believing that valuation matters significantly for small checks at early stages.

Real cost: Missing good investments because you're optimizing the wrong variable. Whether company is valued at $8M or $12M barely affects your $1,000 investment outcome.

Correct approach: For investments under $2,000, focus on team, market, and product. Don't stress about whether valuation is "fair." You're making portfolio bets, not optimizing individual investments.

Average cost of mistake: Opportunity cost of missing 2-3 good investments annually.

Mistake #7: Going Solo Too Early

The Error: Trying to build everything independently without community or structure.

Why it happens: Overconfidence. Desire for independence. Not recognizing how much harder solo path is.

Real cost: You waste 2-3 years learning lessons that communities teach in months. Your portfolio remains tiny because deal flow is so limited. Most solo beginners quit before reaching 10 investments.

Correct approach: Join established community for first 2-3 years. Build 15-20 investment portfolio while learning. Consider solo investing after you have track record and independent deal flow.

Average cost of mistake: 2-3 years of wasted time and $5,000-10,000 in preventable mistakes.

Mistake #8: Neglecting Education

The Error: Assuming you can figure out angel investing through trial and error alone.

Why it happens: Underestimating complexity of early-stage investing. Overestimating ability to learn from just doing.

Real cost: You make expensive mistakes that structured education would prevent. You develop bad habits that persist for years.

Correct approach: Treat angel investing like any other skill. Consume educational content from experienced practitioners. Attend structured programming. Learn frameworks before deploying significant capital.

Angel Squad's weekly educational programming from experienced VCs and successful founders provides exactly this systematic learning that prevents costly beginner mistakes.

Average cost of mistake: $3,000-8,000 in avoidable bad investments.

Mistake #9: Expecting Quick Returns

The Error: Getting frustrated after 12-18 months without seeing returns.

Why it happens: Not understanding that angel investments take 7-10 years to mature.

Real cost: You quit before investments have chance to develop. You miss entire point of patient capital. You might sell secondary positions at terrible valuations out of impatience.

Correct approach: Understand going in that this is decade-long commitment. Don't expect meaningful returns in years 1-5. Evaluate success by learning and portfolio construction, not financial returns.

Average cost of mistake: Selling positions at 20-30% of potential value due to impatience.

Mistake #10: Ignoring Follow-On Strategy

The Error: Not thinking about how you'll handle follow-on rounds in portfolio companies.

Why it happens: Focusing only on initial investment without considering future rounds.

Real cost: Your ownership gets diluted in companies that succeed because you can't or won't invest in follow-on rounds. Your winners return less than they should.

Correct approach: Set aside 30-40% of angel investing capital for follow-ons. When portfolio companies raise Series A, you have capital to maintain ownership percentage.

Average cost of mistake: $5,000-15,000 in diluted returns from successful investments.

Mistake #11: Providing Zero Value-Add

The Error: Treating angel investing as purely financial transaction without helping portfolio companies.

Why it happens: Not understanding that helpful investors get better deal flow. Thinking your $1,000 check is what matters.

Real cost: You don't build reputation. Founders don't refer other founders. Your deal flow never improves. You remain dependent on community sourcing indefinitely.

Correct approach: Make 2-3 valuable introductions per quarter. Respond promptly to founder questions. Share relevant resources. Be known as helpful. This compounds dramatically over time.

As Shiyan Koh, co-founder and GP of Hustle Fund, notes: "Great founders can look like anyone and come from anywhere." Being helpful to founders helps you find those great founders early.

Average cost of mistake: Opportunity cost of not developing independent deal flow.

Mistake #12: Poor Record Keeping

The Error: Not tracking investments, terms, or thinking systematically.

Why it happens: Laziness. Assuming you'll remember details. Underestimating tax complexity.

Real cost: Tax nightmares. Can't learn from past decisions because you didn't document thinking. Miss follow-on opportunities because you don't track company progress.

Correct approach: Create detailed spreadsheet or use portfolio software. Record every investment immediately: date, amount, terms, company details, your thesis. Update quarterly with company progress.

Average cost of mistake: $1,000-3,000 in tax problems plus inability to learn from experience.

Avoiding These Mistakes

Prevention Strategy:

1. Join community with structure (avoids mistakes #7, #8)
2. Make $1,000 investments only for first 15 investments (avoids #1, #4)
3. Never invest in friends (avoids #2)
4. Study portfolio theory before investing (avoids #3)
5. Do basic due diligence always (avoids #5)
6. Don't stress valuations on small checks (avoids #6)
7. Understand 10-year timeline (avoids #9)
8. Reserve capital for follow-ons (avoids #10)
9. Help portfolio companies (avoids #11)
10. Track everything meticulously (avoids #12)

The Cost of Compounding Mistakes

Individual mistakes cost $1,000-5,000 each. But mistakes compound.

Going solo + ignoring education + concentrating + moving too fast = $15,000-30,000 in poor returns over first 2-3 years compared to structured approach.

Most beginners make 4-6 of these twelve mistakes. Average total cost: $10,000-20,000 in poor returns plus 1-2 years of wasted time.

Avoiding mistakes is more important than picking winners.

Angel Squad's structure helps members avoid most common mistakes: $1,000 minimums prevent concentration (mistake #1), curated deal flow removes friend investment pressure (mistake #2), educational programming teaches portfolio theory (mistake #3) and provides frameworks (mistake #8), weekly rhythm prevents moving too fast (mistake #4), and community of 2,000+ investors demonstrates proper approach (mistake #7). 

The infrastructure supports following-on in successful companies and helps members provide value-add to portfolio companies through community connections.

New angel investors fail not because they're unlucky or pick wrong companies. They fail because they make structural mistakes in approach that doom them from the start.

Avoid these twelve mistakes. You'll dramatically improve odds of building successful angel portfolio.