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

You sold your company or stepped away from your startup. You have some capital. You know how hard building a company is. Naturally, you think about becoming an angel investor.

Makes sense, right? Founders understand what other founders go through. You can add real value beyond just money. You've been there.

But here's what nobody tells you: being a good founder doesn't automatically make you a good investor. The skillsets overlap, but they're not the same.

The Psychology Shift Is Hard

Investor Amy Wu made this transition. She went from founding companies to angel investing to eventually becoming a partner at a venture firm. Her biggest realization? "Be honest with yourself about which way you really skew. Do you actually want to just be an investor where you're much more passive? Because you're not an operator anymore."

That hits different when you experience it. As a founder, you're in control. You make decisions. You see immediate results from your actions. Ship a feature, acquire a customer, close a hire.

As an investor? You suggest things. Maybe founders listen. Maybe they don't. You watch from the sidelines while other people build. Some founders love that shift. Others hate it.

"When you're an angel investor, you can say yes to 10, 12, plus 20 investments a year depending on your situation," Wu explains. "For me as a VC taking board seats, I can't do that. I have to say no to sometimes 500 companies a year."

That's the trade-off. Angels can do more deals but have less influence. VCs do fewer deals but go deeper.

You Need a Strategy, Not Just Opinions

Most former founders start angel investing by backing friends. That's natural. You trust these people. You've seen them build before.

But that's not a strategy. That's just being a good friend with money.

Elizabeth Yin, co-founder and General Partner at Hustle Fund, who previously founded a company that sold to 500 Global, learned this the hard way: "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. Don't try to pick a company. Select a portfolio."

Angel investors typically achieve a 24-28% IRR, with top-quartile investments hitting 35-40%. But those returns come from portfolio construction, not picking winners.

You'll lose money on most of your investments. Some will shut down. Others will limp along without exits. A handful will return your fund.

The game is getting enough shots on goal that the winners cover your losses and then some. That requires discipline.

Deal Flow Isn't Automatic

Just because you founded a successful company doesn't mean you automatically get deal flow.

Sure, founder friends might ask you to invest. That's a start. But good deals? The companies that actually have a shot at meaningful returns? Those come from being intentional about building your network as an investor, not just as a founder.

"When deciding whether to bring in external talent or partner with companies, make sure they can produce clean, modulatable code and that performance and UX are not compromised," Shiyan Koh, General Partner at Hustle Fund, advises founders. The same principle applies to investors. You need to be producing value, or you won't see the best opportunities.

Practical ways to build deal flow:

Start small with $1K checks. Most people don't know you can be an angel investor with small checks. You can. This lets you start getting reps, learning what works, and building relationships without committing huge capital.

Join an angel group or community. Angel Squad, for example, gives you access to vetted deal flow and the ability to invest alongside experienced angels. You learn faster by seeing what others look for in deals.

Be helpful first. Make introductions. Give advice. Be the person founders want in their cap table before you write checks. That reputation compounds.

Use your expertise. If you built in fintech, focus there. Don't try to evaluate biotech deals if you don't understand the space. Lean into what you know.

What Founders Get Wrong About Investing

Biggest mistake? Thinking your operating experience means you know how to run someone else's company.

"Some VCs take a long time if they were operators or CEOs before, and they try to call the shots or try to make the decisions," Wu observed. "That works, but it's also much more competitive because if you're trying to win a lead check, if they say yes to you, they're saying no to everyone else."

You're not building anymore. You're supporting the person who is. That's a different job.

Your experience is valuable. But only if you share it in ways founders can actually use. Telling someone "here's what I would do" isn't helpful. Saying "here's what I tried in a similar situation, here's what worked, here's what didn't" is helpful.

The founders who struggle most as investors are the ones who can't let go of operational control. They want to be too involved. They second-guess decisions. They treat portfolio companies like they're still the CEO.

Don't do that. Founders don't want it, and it doesn't work anyway.

Money Isn't Enough

You've got capital. Great. So does every other angel investor.

Eric Bahn, co-founder and General Partner at Hustle Fund, points out that money is a commodity: "One person's money is the same as anyone else's. This is why VCs go around saying they are 'value-add' so that you will pick their money over other investors."

What makes you valuable as a former founder?

You've solved specific problems. Customer acquisition. Hiring. Product-market fit. You can share tactical lessons, not just high-level strategy.

You understand founder psychology. You know what it feels like when everything's falling apart. That empathy matters when you're supporting someone through hard times.

You have a network from your operating days. Investors, potential customers, employees. That network is more valuable than your capital in many cases.

But you have to actually use these advantages. Being a former founder doesn't help if you're just writing checks and disappearing.

Building Your Investment Thesis

Don't invest in everything. You need a thesis.

Maybe it's "I back technical founders building dev tools." Or "I focus on fintech companies solving problems I faced." Whatever it is, having a clear focus helps you evaluate deals faster and build expertise in specific areas.

Yin emphasizes this constantly: "It's very important to understand that angel investing is risky. Most of your investments will return zero. You will lose money. So it's important to have great portfolio construction."

Your thesis should account for:

What stage you invest at. Pre-seed? Seed? Post-seed? Different stages require different evaluation criteria.

What check size makes sense. If you're writing $5K checks, you need lots of companies. $25K checks? Fewer companies. Do the math on what gives you real exposure.

What sectors you understand. Stay in your lane, especially early on.

What value you actually add. Be honest about this. If you can't help with hiring or fundraising or GTM, focus on investments where you can add value in other ways.

The Time Investment

Angel investing takes time. Not as much as operating, but more than you think.

Evaluating deals. Taking founder meetings. Making introductions. Answering questions from portfolio companies. Following up on potential investments. It adds up.

Most successful angels spend 5-10 hours per week on investing activities. That's manageable if you're retired or doing it part-time. It's harder if you're still operating your company or working full-time.

Budget for this. If you can't commit the time, either invest through syndicates where someone else does the work, or wait until your schedule allows for it.

Learning From Mistakes

Every former founder who becomes an investor makes mistakes. You'll back the wrong companies. You'll pass on companies that become huge. You'll give bad advice.

That's fine. The goal isn't perfection. It's improvement.

Startups backed by angel investors have a 60% higher survival rate compared to those without external funding, and angel-funded companies reach profitability in about 3.5 years on average. Your involvement actually matters.

The founders who succeed as investors are the ones who stay humble, keep learning, and adapt their approach based on what works.

The Bottom Line

Transitioning from founder to angel investor is possible and potentially rewarding. You bring unique value. But you need to be intentional about it.

Build a strategy. Construct a portfolio. Be helpful without being overbearing. Invest in what you know. Accept that you're not operating anymore and that's okay.

The best part? You get to stay connected to the startup world, support other founders through the journey you already took, and potentially make money doing it.

Want to make this transition with support from people who've done it successfully? Join Angel Squad to learn portfolio construction, access vetted deal flow, and invest alongside experienced angels who understand both sides of the table.