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

Some people are positioned for angel investing success. Others are positioned for frustration and disappointment. The difference often comes down to specific indicators you can assess before committing.

This is the complete guide to red flags that should give you pause and green lights that suggest you should proceed.

Financial Red Flags

Red Flag: Capital isn't genuinely surplus You'd notice if the investment disappeared. You might need to adjust spending or delay purchases. The money has other potential uses you care about.

Why it matters: Angel investing has 60-70% failure rate on individual investments. If losses cause financial stress, you shouldn't be investing.

Red Flag: You're stretching to meet investment minimums You're combining multiple funding sources or timing investments around cash flow. Investment size feels significant rather than trivial.

Why it matters: Feeling financial pressure affects decision-making and creates stress that undermines experience.

Red Flag: Other financial priorities are unaddressed Emergency fund is incomplete. Retirement contributions are behind. High-interest debt exists. Major purchases aren't funded.

Why it matters: Angel investing should be last priority after fundamentals are solid. Skipping basics to invest is poor allocation.

As Elizabeth Yin, co-founder and GP of Hustle Fund, explains: "Most of your investments will return $0. You will lose money. So it's important to have great portfolio construction."

Financial red flags mean you can't absorb the losses that portfolio construction expects.

Financial Green Lights

Green Light: Loss would cause only mild disappointment $15,000-25,000 could disappear and you'd feel disappointed but not stressed. No lifestyle impact whatsoever.

Green Light: Investment is small portion of liquid assets 5-10% or less of investable assets. Well-diversified overall portfolio with angel investing as small allocation.

Green Light: All financial fundamentals are solid Emergency fund fully funded. Retirement on track. No problematic debt. Major purchases planned and funded.

Time and Commitment Red Flags

Red Flag: Schedule is already overcommitted You struggle to maintain current commitments. Adding 3-5 hours weekly would require sacrificing something important.

Why it matters: Angel investing requires sustained engagement for years. Dropping off after initial enthusiasm wastes earlier investment.

Red Flag: History of abandoning long-term commitments Pattern of starting things enthusiastically then losing interest. Previous commitments that faded over time.

Why it matters: Angel investing requires decade-long commitment. Past behavior predicts future behavior.

Red Flag: Life circumstances are unstable Major life changes anticipated or in progress. Job uncertainty, family transitions, or relocations pending.

Why it matters: Instability makes sustained commitment difficult. Better to wait for stability.

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."

Time red flags mean you can't sustain the practice required for proper portfolio construction.

Time and Commitment Green Lights

Green Light: Track record of sustained commitments History of maintaining long-term commitments through challenges. Evidence of discipline and follow-through.

Green Light: Clear time availability 3-5 hours weekly can be allocated without significant sacrifice. Schedule has flexibility for consistent engagement.

Green Light: Stable life circumstances No major changes anticipated. Settled situation supporting long-term commitment.

Motivation Red Flags

Red Flag: Primarily seeking financial returns Main goal is making money. Other benefits (learning, networks) seem secondary or irrelevant.

Why it matters: Financial-only motivation leads to disappointment. Median returns don't justify the commitment without non-financial value.

Red Flag: Following trend or social pressure Interested because others are doing it. Worried about missing out. Someone else's success triggered interest.

Why it matters: External motivation doesn't sustain decade-long commitment. Interest fades when novelty wears off.

Red Flag: No genuine interest in startups Don't follow startup news. Don't find business models interesting. Wouldn't read about startups without investment motivation.

Why it matters: Without genuine interest, engagement feels like obligation rather than enjoyment.

Motivation Green Lights

Green Light: Values learning and networks explicitly Considers education and relationship building valuable regardless of financial returns. Would appreciate experience even with modest returns.

Green Light: Genuine interest in startups and innovation Follows startup news independently. Finds business models fascinating. Would engage with content without investment motivation.

Green Light: Career benefit from startup knowledge Professional role benefits from understanding startup dynamics. Network in startup ecosystem has career value.

As Shiyan Koh, co-founder and GP of Hustle Fund, notes: "Great founders can look like anyone and come from anywhere."

Motivation green lights include openness to learning from diverse founders and situations.

Risk Tolerance Red Flags

Red Flag: Investment losses cause significant stress Past investment losses created anxiety, sleep disruption, or ongoing worry. Volatility is emotionally difficult.

Why it matters: Angel investing means watching most investments fail. If this causes stress, experience will be negative.

Red Flag: Preference for certainty and predictability Uncomfortable with ambiguity. Prefer knowing outcomes. Struggle with extended uncertainty.

Why it matters: Angel investing involves decade of uncertainty. Preference for certainty is fundamental mismatch.

Red Flag: Difficulty maintaining strategy through challenges Tendency to abandon plans when individual components struggle. Difficulty trusting process when results are poor.

Why it matters: Portfolio strategy requires maintaining discipline while most investments fail.

Risk Tolerance Green Lights

Green Light: Comfortable with investment volatility Past losses were accepted calmly. Volatility doesn't disrupt sleep or wellbeing.

Green Light: Can maintain strategy through uncertainty History of trusting long-term plans despite short-term challenges. Process-focused rather than outcome-focused.

Green Light: Understands and accepts failure rates Genuinely comfortable with 60-70% individual investment failure. Sees this as feature of model, not personal failure.

Approach Red Flags

Red Flag: Plans to invest solo through personal network No intention to join community. Believes personal network provides sufficient deal flow.

Why it matters: Network-dependent deal flow is inconsistent quality. Solo investors lack support and accountability.

Red Flag: Unwilling to maintain consistent check sizes Plans to vary investment based on conviction. Wants to "bet big" on best opportunities.

Why it matters: Conviction doesn't predict outcomes. Variation creates concentration risk.

Red Flag: Expecting to identify winners reliably Believes evaluation skill will produce above-average selection. Plans to pick rather than diversify.

Why it matters: Nobody reliably picks winners at early stage. This belief produces concentrated portfolios and disappointment.

Approach Green Lights

Green Light: Willing to join community for deal flow Understands value of institutional-quality opportunities. Open to community infrastructure and support.

Green Light: Committed to portfolio discipline Plans 20+ investments with consistent sizing. Trusts diversification over conviction-based concentration.

Green Light: Realistic about selection limitations Understands that picking winners is unreliable. Emphasizes process and portfolio over individual selections.

Angel Squad addresses approach requirements: curated deal flow from Hustle Fund's pipeline provides institutional quality, $1,000 consistent minimums enable disciplined portfolio construction, and community infrastructure supports sustained engagement.

Using Red Flags and Green Lights

Scoring approach:

Count your red flags across categories: Financial, Time, Motivation, Risk Tolerance, Approach.

Count your green lights across same categories.

Interpretation:

Mostly green lights (8+ of 12): Strong candidate. Proceed with confidence.

Mixed (5-7 green lights): Moderate fit. Address red flag areas or proceed cautiously.

Mostly red flags (4 or fewer green lights): Poor fit currently. Wait until situation improves or consider alternatives.

The honest assessment: Red flags aren't personal failures. They're honest indicators of fit. Ignoring red flags leads to disappointment. Addressing them or accepting poor fit leads to better outcomes.