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

Your portfolio could be worth $10 million on paper and you still can't buy a cup of coffee with it.

Liquidity is everything. Without it, you're just watching numbers on a screen.

Most angels don't think about exits until it's too late. They invest in exciting companies, watch valuations climb, celebrate markups on their portfolio trackers, and then wait years for an exit that may never come. Meanwhile, their capital is locked up and their opportunity cost is massive.

The smart angels plan their exit strategy before they write the first check.

The Illiquidity Problem Is Worse Than You Think

Your investments are stuck for 7-10 years minimum. Sometimes longer. Sometimes forever.

Elizabeth Yin has talked about this openly: even when exits happen and cash comes back to the fund, it's up to the fund manager's discretion whether to distribute that cash or recycle it. You might not see money for years even after a successful exit. Hustle Fund has started distributing some cash to help LPs cover taxes on gains, but the default is to recycle capital because it generates better returns.

For individual angels, there's no recycling option. You just wait.

The problem compounds when you realize most startups don't exit. They die slowly. Founders ghost investors. Websites disappear. LinkedIn shows everyone moved to new jobs. But there are no dissolution docs, no formal shutdown, nothing you can use to claim a tax write-off.

You're left holding worthless shares in a company that technically still exists but is effectively dead.

Secondary Markets Are Emerging But Still Messy

There's growing momentum around secondaries, especially for later-stage companies.

Platforms like Forge and EquityZen let investors sell shares before an IPO or acquisition. But the market is thin, pricing is unpredictable, and transaction costs are high. You might get 50-70 cents on the dollar for shares that would be worth $1 at exit.

For seed-stage angels, secondary opportunities are even rarer. Nobody wants to buy your shares in a pre-revenue startup. The only secondaries that happen at that stage are when insiders or new investors want to clean up the cap table.

Hustle Fund portfolio companies occasionally do secondary sales for early employees or angels who need liquidity. But it's not common and it's never guaranteed. You can't build a strategy around it.

Pro Rata Rights Are Your Liquidity Lifeline

This is the clause that lets you invest more money in future rounds to maintain your ownership percentage.

Most angels don't negotiate for pro rata rights. They should.

Here's why it matters: if you own 1% of a company and it raises three more rounds without you participating, dilution can cut your ownership to 0.3%. At a $300 million exit, you just lost $2.1 million compared to what you would have made if you'd maintained your stake.

Pro rata rights let you decide whether to double down or let your stake dilute. That optionality is valuable. VCs always negotiate for it. Angels usually don't think about it until it's too late.

Hustle Fund's side letters typically include pro rata rights for this exact reason. It's not just about maintaining ownership. It's about having the option to increase your exposure to your best-performing companies.

The Power Law Means Most Exits Don't Matter

Your returns come from 1-2 companies in a portfolio of 30.

That's the math of early-stage investing. Most companies return zero. Some return 1-2x. A few return 10x. And if you're lucky, one returns 100x and makes your whole portfolio.

The implication for exit strategy is brutal: most of your liquidity events don't actually matter. The small acquisitions that return 2-3x on your investment don't move the needle. They barely cover your losses.

Elizabeth Yin has been clear about this: angels need to be shooting for 100x returns in their winners. A $5,000 investment in Uber's seed round that returned $25 million at IPO? That's the kind of outcome that makes angel investing work. Not the $10,000 exit from a company that got acquired for parts.

This is why you can't optimize for early liquidity. The companies that exit fast are rarely the ones that generate life-changing returns. The big winners take 10+ years to mature.

IPOs Are Rare, Acquisitions Are Common, Shutdowns Are Most Common

Let's talk about what actually happens.

IPOs are the dream scenario. Liquidity is guaranteed, shares are publicly traded, and you can sell on your own timeline. But IPOs are vanishingly rare at the seed stage. Hustle Fund has invested in 600+ companies. How many have IPO'd? A handful.

Most successful exits are acquisitions. The company gets bought by a larger player, existing shareholders get cashed out, and everyone moves on. These are often good outcomes but rarely spectacular ones. A $50-100 million acquisition sounds great until you realize that after liquidation preferences, angels at the bottom of the stack might get 2-3x if they're lucky.

And most companies? They just shut down. Founders move on, investors write off their losses, and life continues. This is the base case, not the exception.

Planning From Day One

Smart angels think about exit strategy at the moment they invest.

Ask yourself: what's the most likely exit path for this company? How long will it take? What needs to happen between now and then? What's my ownership going to look like after dilution?

If the company is raising at a $50 million post-money valuation, can it realistically exit for $5 billion to generate 100x returns? If not, why are you investing?

If the market is mature and competitive, is an acquisition the most likely outcome? Who are the potential acquirers? What do they pay for similar companies?

These questions matter before you write the check.

Hustle Fund's approach is to deploy capital with the understanding that recycling is essential. More money to invest means more shots on goal and better returns if you pick well. But individual angels don't have that luxury. Every dollar you invest is a dollar you can't use elsewhere for years.

The Secondary Sale Reality Check

Some investors are getting creative with earlier liquidity.

Rolling funds let you invest quarterly rather than locking up capital for 10 years. SPVs can sometimes facilitate secondary sales for LPs who need out. And more companies are doing tender offers to give employees and early investors some liquidity before an exit.

But these are still the exception, not the rule.

The default assumption for any angel investment should be: this money is gone for 10 years and might never come back.

If you can't afford that, you can't afford to be an angel investor.

Building an Exit-Aware Portfolio

The best angels structure their entire portfolio with liquidity in mind.

They diversify across vintage years so they're not waiting on 30 companies to exit all at once. They invest in companies at different stages so some might have shorter time-to-exit. They maintain cash reserves so they can participate in follow-on rounds for their winners.

And they stay patient. Because the brutal reality is that your best investment might take 12 years to pay off. If you need liquidity sooner than that, angel investing is the wrong asset class.

The companies that return 100x don't happen on your timeline. They happen when the market is ready, when the company has scaled, when an acquirer or the public markets recognize the value. That takes time.

Want to learn how to build a portfolio that actually generates liquidity? Angel Squad teaches investors how to think about exits, structure their portfolios for realistic timelines, and avoid the trap of paper gains that never materialize. Because owning shares in great companies doesn't matter if you never turn them into cash.