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

People think angel investing is expensive because of the money you need. That's actually the easy part.

The real cost shows up everywhere else. It's in the hours you spend doing diligence on a company that shuts down. It's in the legal fees that make investing in some startups completely uneconomical. It's in the cash sitting locked up for 7-10 years while your friends are buying rental properties or index funds.

Let's talk about what angel investing actually costs.

The Upfront Costs Nobody Warns You About

Most new angels think they can just write checks. You can't.

If you're investing through an SPV or small fund, 20% of your capital is getting eaten by management fees before a single dollar goes to startups. A $10 million fund? Only $7.5 million actually gets deployed after you account for legal costs, accounting, audits, and fund admin. Hustle Fund has been transparent about this: the fee structure is real and it's hefty.

For solo angels, the math looks different but it's still brutal. International investments can cost $5,000-$10,000 in legal fees plus accounting and audit costs. If you're writing a $25,000 check, that overhead makes the investment nearly pointless. This is why Hustle Fund avoids certain structures even when there are promising opportunities. The infrastructure costs kill the economics.

And if you're investing in anything besides a Delaware C-corp? Prepare for pain. LLCs and SPVs create tax nightmares with paperwork that costs time and money. Angels don't face this because they handle their own taxes. But the moment you pool money with others, you're dealing with K-1s and capital calls and a level of complexity that makes some deals not worth pursuing.

Time Is the Silent Killer

Writing the check takes five minutes. Everything else takes forever.

Diligence on a single company can eat 10-20 hours if you're doing it right. You're reading pitch decks, analyzing financials, talking to founders, checking references, understanding the market. For a $5,000 check, that's economically insane. But you have to do it anyway because most startups fail.

Then there's portfolio management. Founders need intros. They need advice on hiring, pricing, go-to-market strategy. Some need a lot of hand-holding. Others just need you to stay out of the way. But even the low-maintenance ones require quarterly check-ins, reviewing investor updates, and being available when things get messy.

Elizabeth Yin has mentioned that one of the differences between being an angel and being a VC is the time commitment. VCs take board seats and can't say yes to 10-12 investments per year like angels can. Angels have more flexibility, but they still need to allocate real time if they want to be helpful.

The opportunity cost here is massive. Those 20 hours you spent on diligence? You could have been building your own company, consulting at $500/hour, or just relaxing with your family. Time has value and angel investing burns through it.

The Opportunity Cost of Locked Capital

Your money is going to be stuck for a long time.

Most exits take 7-10 years. Some take longer. Some never happen. While your capital is locked up in illiquid startups, you're missing other opportunities. Real estate deals. Public market runs. Starting your own company. All of that requires liquidity.

Hustle Fund talks openly about recycling capital. When portfolio companies exit or shut down and return remaining cash, funds can reinvest that capital to get more firepower. But for individual angels, you just wait. And wait. And sometimes never see that money again.

The mental burden is real too. You need to plan your cash situation across multiple years to handle capital calls if you're investing through funds. During market crashes, many LPs couldn't make their capital calls and funds went belly up. That meant startups stopped getting funded. The fragility of the whole system depends on people having liquid capital available when called.

Hidden Costs That Add Up Fast

Transaction costs matter more than people think.

Every round of funding has legal fees, even on SAFEs. If you're doing proper due diligence, you're paying for background checks, OFAC screenings, and reference calls. Small stuff, but it adds up across a portfolio of 20-30 companies.

Then there's the cost of learning by losing money. New angel investors make expensive mistakes. They put too much capital in one company instead of diversifying. They invest at too high a valuation and get crushed by dilution. They don't understand preference stacks and get nothing when the company exits for $50 million.

Hustle Fund's view is that bigger portfolios are better for beginners because diversification mitigates downside risk and gives you reps to learn. But building that portfolio means writing 20-30 checks at $1,000-$5,000 each. That's $20,000-$150,000 in total capital commitment just to get educated.

The Psychology Tax

This one doesn't show up on any balance sheet but it's real.

Watching companies fail is emotionally draining. You believed in the founder. You spent time helping them. You told your friends about how exciting the company was. And then they shut down or ghost you completely. Elizabeth Yin shared a story about founders who just disappeared, website gone, moved to new jobs, no dissolution docs.

You're going to have to write off investments where you're not even sure what happened. Your accountant will ask for documentation. You won't have it. You'll need to piece together evidence that the company is dead just to get a tax deduction.

That wears on you.

Making the Economics Work

The only way angel investing pencils out is if your winners are massive.

At Hustle Fund, the math is clear: you need 100x returns in your winners because most investments return zero. A $25,000 investment at a $1 million valuation needs to exit at $100 million just to deliver meaningful returns after dilution and preference stacks.

That's why portfolio construction matters so much. You can't just pick one great company. You need 20-30 shots on goal knowing that 70-80% will fail. Your job isn't to pick winners. Your job is to build a portfolio where the math works out.

The real cost of angel investing is accepting that most of your time, money, and emotional energy will be spent on companies that go nowhere. The few that work out need to be so successful that they cover all those losses plus generate real returns.

If you're not prepared for that reality, angel investing is going to be a painful education.

Want to learn how to build a portfolio that actually works? Angel Squad helps aspiring investors understand the economics of early-stage investing and avoid the expensive mistakes most beginners make. The education you get from experienced angels who've been through the grind is worth more than any single investment.