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 brain is terrible at angel investing.

Not because you're not smart. You probably are. But human psychology evolved to avoid risk, make quick judgments based on limited information, and optimize for short-term survival. Angel investing requires the exact opposite: embracing risk, gathering extensive data, and playing infinite games that won't pay off for a decade.

The result is incredibly intelligent people make shockingly bad investment decisions. They pass on billion-dollar companies for reasons that make no sense in retrospect. They concentrate their portfolios in obvious picks that everyone else also loves. They bail on companies at exactly the wrong time.

Let's talk about why this happens and what you can do about it.

The Risk Aversion Problem

We're raised to avoid mistakes. In school, you get rewarded for scoring 90% on five exams. You never get praised for scoring 120% on one exam and 30% on four others. But that's exactly how startup investing works.

Think about what this means for angel investing. You're trained your entire life to avoid failure. But in early-stage investing, failure is the baseline. Most of your bets will return zero. You don't care how many things you get wrong. You only care about how right you are on the few things you get right.

This creates a fundamental mismatch. Your instinct is to look for safe bets, companies that won't fail. But safe companies at the early stage don't exist. And the companies that look safest often have the most competition and the lowest potential returns.

The doctors, lawyers, and engineers who transition into angel investing struggle the most with this. In their careers, mistakes are catastrophic. You can't be a brain surgeon who gets things 60% correct. But in angel investing, getting things 60% wrong is perfectly fine if your 40% of winners are massive enough.

Single-Bet Thinking vs. Portfolio Thinking

Your brain processes activities one at a time. You're working on this problem. You're trying to get it right. You move to the next problem. You try to get that right.

But investing in risky assets like startups requires portfolio thinking. You don't evaluate each investment in isolation. You evaluate them as part of a system designed to generate returns across many bets.

This is genuinely hard for most people to internalize. When you write a $5,000 check, your brain wants that specific company to succeed. You get emotionally attached. You check their website every week. You stress when they miss a milestone.

None of that matters. What matters is whether your portfolio of 50-100 companies generates the returns you need. That one company you're obsessing over? It's probably going to zero like most of the others. Your job is to make sure you have enough bets in play that your winners can carry everything else.

The mental model that helps is think of angel investing like a career of entrepreneurship. You're not making one bet on one startup. You're making 5-10 bets across your lifetime, knowing most will fail but hoping one breaks through. Same logic applies to your investment portfolio.

The "I Can Pick Winners" Delusion

Smart people are used to being good at things. They studied hard, they got into good schools, they built successful careers. Their pattern recognition has served them well in other domains.

So they assume it'll work in angel investing too. They meet founders, assess the opportunity, and decide whether it's a winner. They're confident in their judgment because their judgment has usually been pretty good.

This is where overconfidence kills you.

First-time founders with no track record can build billion-dollar companies. Serial entrepreneurs with incredible pedigrees can fail spectacularly. The most obvious opportunities in massive markets can go nowhere. The weird idea that makes no sense can end up dominating an industry you didn't even know existed.

There's just too much luck involved. Market timing matters. Competitive dynamics shift. Technologies that seem inevitable never materialize. Things that should never work somehow do.

This doesn't mean skill is irrelevant. But at the pre-seed and seed stage, the signal-to-noise ratio is incredibly low. Even if you're 10% better at picking than average, that's not enough to overcome poor portfolio construction or misunderstanding the math of returns.

Decision-Making Under Uncertainty

Angel investing decisions happen with incomplete information. You meet a founder for an hour. You see a pitch deck. Maybe you check some references. Then you're supposed to decide whether to invest tens of thousands of dollars in a company that probably doesn't have product-market fit yet.

The instinct is to gather more data. More meetings. More diligence. More time to think about it.

At the early stage, more data doesn't actually help that much. The founder doesn't know if their idea will work. The market doesn't exist yet or is too nascent to have reliable data. The team hasn't been tested under real pressure.

Investors who take forever to decide aren't being more careful. They're just paralyzed by uncertainty they'll never resolve. The only way to know if a company will succeed is to give it 5-10 years and see what happens.

So what's the alternative? Make faster decisions based on clear frameworks. Can this team execute? Is the problem real? Is the solution interesting? If yes to all three, write the check and move on. You'll be wrong a lot. That's fine. You need volume to win at this game.

The Exit-Too-Early Problem

You back a company. It's doing okay but not crushing it. Another investor offers to buy your shares at 3x. You take the deal because 3x is good, right?

Wrong. This is one of the most common ways angels kill their returns. They exit winners too early and hold losers too long.

The psychology here is tricky. Taking money off the table feels good. It's concrete. But early-stage investing is about power law returns. Your one 100x outcome needs to carry your entire portfolio. If you sell your winners at 3x or 5x, you'll never generate the returns you need to cover your losses and make real money.

The opposite happens with losers. You hold on because admitting failure is psychologically painful. The company clearly isn't working, but maybe it'll turn around. Maybe the founder just needs one more quarter. You avoid the loss by pretending it's not a loss yet.

Professional investors are better at this because they've done it enough times to recognize the patterns. When a company is stuck in neutral for 18 months with no clear path forward, it's probably not going to become a rocket ship. When a company is growing 50-100% month-over-month despite obvious problems, it might be worth holding through the chaos.

Playing the Long Game

Everything in angel investing happens slowly. Your first check won't return money for 7-10 years minimum. The founders you meet today might not build their breakthrough company until their second or third attempt. The relationships you nurture might not pay off for a decade.

But we're wired for short-term thinking. We want immediate feedback. We want to know if we made the right decision. We get impatient and make changes that feel productive but actually hurt long-term returns.

Shiyan Koh at Hustle Fund talks about how entrepreneurs need multiple at-bats to succeed. The same logic applies to angel investors. Your first 20 investments will probably be mediocre. You're learning. You're building pattern recognition. You're making mistakes that teach you what not to do next time.

If you judge yourself on short-term results, you'll quit before you get good. Or you'll make reactive changes that prevent you from learning what actually works.

What Actually Helps

You can't completely rewire your brain. But you can build systems that work with your psychology instead of against it:

Write smaller checks so individual losses sting less. Automate your decision-making with clear rubrics. Set a target portfolio size and stick to it. Find a community of other angels who understand the game and can reality-check your thinking.

Most importantly, remember that feeling confident about your picks is often a bad sign. The best investments frequently feel risky and uncertain. If something seems like an obvious winner, it's probably already overpriced or overcrowded.

Angel Squad provides exactly this kind of environment - a community where you can learn from other investors' mistakes, get real feedback on your decision-making, and build the discipline needed to actually succeed at this game. Because the difference between angels who make money and angels who don't usually comes down to whether they learned to work around their psychological blind spots before they burned through all their capital.