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

Angel investing has spectacular failures. People who lost $50,000-100,000 investing in friend's companies or concentrated bets that went to zero.

These disasters are preventable. Not through better picking (you can't reliably predict winners at early stages), but through better structure.

How to invest in startups without catastrophic financial outcomes.

Rule #1: Only Invest Money You Can Lose

The Non-Negotiable Foundation

Before making a single investment, establish how much capital you can genuinely afford to lose completely.

Not "willing to risk." Not "money I hope to make back." Money that if it vanished tomorrow wouldn't materially affect your life.

For most people, this is 5-10% of liquid net worth at most. If you have $200,000 in savings and investments, maybe $10,000-20,000 over 2-3 years is appropriate for angel investing.

Why This Matters

60-70% of startup investments return zero. Most of your investments will fail completely.

If losing your angel investing capital would:

• Force you to delay retirement
• Affect your children's education
• Create stress about monthly expenses
• Make you sell investments at bad times

Then you're investing too much. Scale back dramatically or don't angel invest yet.

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."

Portfolio construction only helps if you're working with appropriate amounts.

Rule #2: Diversify Ruthlessly

Minimum Portfolio Size

15-20 investments minimum. Preferably 20-30.

Fewer than 15 investments means too much concentration risk. Even professional VCs with pattern recognition built over decades need 20-30 investments per fund.

You're not smarter than professional VCs. You need at least as much diversification as they do.

How to Actually Achieve Diversification

With $1,000 per investment, you can build 20-investment portfolio with $20,000 over 2-3 years.

This is achievable for most successful professionals. $7,000-8,000 annually for three years.

Angel Squad members building portfolios with $1,000 minimums typically reach 15-20 investments within 18-24 months through consistent access to curated opportunities from Hustle Fund's pipeline.

Traditional angel groups requiring $10,000-25,000 per investment make proper diversification impossible for most people.

Diversification Across Multiple Dimensions

Different industries: Don't invest only in SaaS or only in consumer products.

Different stages: Mix of pre-seed and seed.

Different founding team profiles: Technical founders, sales-driven founders, repeat founders, first-timers.

Different business models: B2B, B2C, marketplace, SaaS, hardware.

Concentration in any dimension increases risk unnecessarily.

Rule #3: Size Your Checks Appropriately

Start Small

First 10-15 investments should be $1,000 maximum per company.

You're learning. Your early decisions will include mistakes. Keeping individual bets small limits damage from those mistakes.

After 15-20 investments when you've developed pattern recognition, consider increasing to $2,000-3,000 per investment.

Resist the Temptation to Concentrate

When you find a company you really believe in, the temptation is investing $5,000-10,000.

Don't. Your conviction is probably wrong. You don't have enough experience to justify concentrated bets.

Stay disciplined with check sizes even when you're excited.

The Math Protection

If you invest $1,000 in 20 companies:

• 14 return zero = -$14,000
• 4 return 2x = +$8,000
• 2 return 10x = +$20,000

Net: +$14,000 (70% total return)

If you invest $5,000 in 4 companies:

• 3 return zero = -$15,000
• 1 returns 10x = +$50,000

Net: +$35,000 (175% total return)

The concentrated approach looks better if that one 10x winner is in your portfolio. But odds are lower you'll catch it with only 4 investments.

More likely: all 4 fail, you lose everything.

Rule #4: Set Annual Budgets

Fixed Dollar Commitment

Decide annually how much you'll invest. $5,000? $10,000? $15,000?

Commit to that amount at year start. Don't deploy more even if you see amazing opportunities.

This discipline prevents emotional overinvestment during frothy markets or exciting deal flow periods.

Distribution Over Time

Spread deployment across the year. If your budget is $8,000, invest roughly $2,000 per quarter.

This timing diversification means you're not investing everything at market peaks.

Stick to the Plan

Most investors who lose significant money broke their own rules. They saw exciting opportunities and invested beyond their budget.

The discipline of fixed annual budgets protects you from yourself.

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."

Annual budgets enable consistent practice without risking inappropriate amounts.

Rule #5: Do Basic Due Diligence Always

The 30-Minute Minimum

Even for $1,000 investments, spend 30-60 minutes on basic verification:

Google the founders. What's their reputation? Any red flags?

Check LinkedIn backgrounds. Have they actually done what they claim?

Review the business model. Does the math make basic sense?

Look at competition. Is market genuinely interesting?

Warning Signs to Never Ignore

Founders with history of failed companies where they blamed everyone else. Claims that seem inflated or unverifiable. Unclear business model or path to revenue. Team conflict or obviously missing skills. Fundraising that's been open for many months (signal others passed).

If you see these warning signs, pass. Don't convince yourself it's fine.

Trust Your Gut on People

If founders seem dishonest, evasive, or arrogant in ways that concern you, don't invest.

You can't thoroughly evaluate early-stage companies. But you can evaluate whether founders seem trustworthy and capable of learning.

Rule #6: Avoid Special Situations

No Friends or Family

Never invest in friends' or family members' companies. This mixes personal relationships with financial decisions in ways that rarely end well.

If company fails (likely), relationship suffers. If it succeeds, dynamics get complicated.

Just don't do it. Save these relationships.

Angel Squad's curated deal flow from Hustle Fund's pipeline of 1,000+ monthly applications provides quality opportunities so you never feel obligated to invest in friends' companies just to participate.

No "Opportunity of a Lifetime"

If founder is creating artificial urgency ("invest today or miss out"), that's red flag not opportunity.

Good investors don't make rushed decisions. Don't let FOMO override judgment.

Rule #7: Understand the Timeline

Decade-Long Commitment

Angel investments take 7-10 years to mature. Some take longer.

You won't see meaningful returns in years 1-5. This is patient capital.

If you might need the money back in 3-5 years, don't angel invest. The capital is effectively illiquid until exits happen.

No Early Exits Usually

Secondary markets exist but are inefficient. Selling startup equity before exit usually means accepting 20-40% of theoretical value.

Assume money is locked up until company exits (acquisition or IPO) or fails. Plan accordingly.

Rule #8: Expect Most Investments to Fail

The Failure Baseline

60-70% of your investments will return zero. Not break even. Zero.

20-30% might return 1-3x. 5-10% might return 5x+. 1-2% might return 10x+.

If you can't psychologically handle watching most investments fail, don't angel invest.

Don't Get Attached

You'll invest in companies you believe in. They'll seem promising. Then they'll fail.

This is normal. It doesn't mean you made bad decisions. It means early-stage investing is high risk.

As Shiyan Koh, co-founder and GP of Hustle Fund, notes: "Great founders can look like anyone and come from anywhere." Even great founders often fail due to market timing, competition, or execution challenges.

Rule #9: Track Everything

Detailed Records

Create spreadsheet tracking every investment:

• Date, amount, company name
• Investment terms (SAFE cap, discount, etc.)
• Your thesis (why you invested)
• Regular updates on company progress

This serves multiple purposes: tax documentation, learning from outcomes, and portfolio management.

Review Quarterly

Every quarter, review portfolio. Which companies are executing well? Which are struggling? What patterns do you notice?

This feedback loop is how you actually improve over time.

Rule #10: Don't Try to Actively Manage

You're Not a Board Member

At $1,000-2,000 per investment, you're not on boards. You're not deeply involved in operations. You shouldn't be trying to steer companies.

Your role is being helpful when asked, not managing the business.

Stay in Your Lane

Provide value where you have expertise. Make introductions. Answer specific questions. Share relevant resources.

Don't try to teach founders their business or substitute your judgment for theirs.

Let Winners Win

The companies that succeed will do so because of founders' execution, not your involvement.

Your job is selecting good opportunities and staying out of the way.

What Losing Your Shirt Looks Like

The Cautionary Examples

Investor A: Put $50,000 into friend's company. Company failed. Lost $50,000 and damaged friendship.

Investor B: Made 3 investments of $15,000 each. All three failed. Lost $45,000 with no diversification benefit.

Investor C: Invested $30,000 across 30 companies at $1,000 each. 22 failed, 6 returned 2-3x, 2 returned 10x+. Net positive return despite 73% failure rate.

The difference: diversification and appropriate sizing.

Building Protection Into Your Practice

Year 1 Approach

Budget: $5,000-7,000 Investments: 5-7 companies at $1,000 each Goal: Learn process, make inevitable beginner mistakes with limited capital

Year 2 Approach

Budget: $6,000-8,000 Investments: 6-8 companies at $1,000 each Goal: Build toward 15-investment minimum, refine evaluation frameworks

Year 3 Approach

Budget: $7,000-10,000 Investments: 7-10 companies at $1,000 each Goal: Complete initial portfolio of 18-25 companies, begin seeing some outcomes

Total three-year capital: $18,000-25,000 Total investments: 18-25 companies

This is proper portfolio construction with capital amounts most successful professionals can afford.

The Safety Net

Following these rules won't guarantee positive returns. Angel investing is inherently risky.

But these rules dramatically reduce probability of catastrophic losses:

Diversification protects against any single failure destroying your portfolio. Appropriate sizing limits damage from mistakes. Fixed budgets prevent emotional overinvestment. Basic due diligence filters obvious problems.

You might still lose money overall. But you won't lose your shirt.

Angel Squad's structure incorporates these protective principles: $1,000 minimums enable 15-20 investment diversification without requiring massive capital, curated deal flow from Hustle Fund's professional screening filters obvious problems, weekly educational programming teaches proper portfolio construction, and community of 2,000+ investors demonstrates disciplined approaches. 

The infrastructure removes temptations (no friend investments, no rushed decisions, no negotiating strange terms) that cause catastrophic beginner losses.

Startup investing done properly is risky but not reckless. Follow disciplined approach focused on portfolio construction over picking winners. Protect yourself through diversification and appropriate sizing. Learn systematically rather than gambling on concentrated bets.

You might not get rich angel investing. But you won't lose your shirt either.