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

Here is a thought experiment that should rewire how you think about startup investing.

If you invested $5,000 into Uber's seed round in 2009 and held until the IPO, you would have made roughly $25 million. That $5,000 check did not buy you any ownership worth talking about. So was that a failed investment?

Obviously not.

That outcome had nothing to do with the ownership percentage. It was entirely about the multiple on the dollars invested. And this is how every early-stage investor should be thinking. Multiples. Not ownership.

Where the Ownership Obsession Came From

Ownership is actually a great mental model for later-stage investors. If you have a Series B company that is clearly winning and growing fast, you want to buy as many shares as possible. It is obvious that you will get the greatest multiples from putting money into that company over other options that are not growing as quickly.

The ownership mental model makes sense when you have a clear, limited number of fast-growth choices. You know who is winning. You want maximum exposure.

But this is not the case at pre-seed and seed. At those stages, nobody knows who the winners will be. There are tons of permutations to get to the same outcome. You could get in at low valuations and hit 100x on a decent exit nobody has ever heard of. You could pay up at a higher valuation into a serial founder's company and hit 100x on a $10 billion exit. Everything in between is possible.

Elizabeth Yin has been vocal about this: the point is that multiples on your money is what matters. Ownership does not. At early stage. Going back to first principles is critical since the market always changes and evolves.

The Pro-Rata Trap

This is where the multiples framework really gets useful. Let me walk through a scenario.

Say you invest $100K into Company X at a $5 million post-money valuation. To get a 100x gross multiple, the company needs to sell for $500 million. After three rounds of dilution, you would get roughly a 50x return. Not bad.

Now Company X is raising a new round and asks if you will do your pro-rata. Most investors would instinctively say yes. "We need to put down $400K to maintain our ownership."

But hold on. Is that really the best use of $400K?

If the company is doing well but is not clearly the fastest thing ever, it might be better to put $100K into four more companies at lower valuations. You get four shots on goal instead of one. And at the early stage, those new companies are entering at lower prices, meaning the multiple potential is higher.

Elizabeth Yin has laid out this math clearly: there is a finite amount of capital in a fund, and this is why ownership is not a good mental model for early-stage investing. The best way to allocate capital will vary from company to company and situation to situation. Blindly maintaining pro-rata is not a strategy. It is a reflex.

When Follow-On Does Make Sense

This is not saying never follow on. Sometimes the existing company really is the best use of that capital. It makes sense when the company is growing outrageously fast, in the top 1% territory, and the multiple still works at the higher valuation. It also makes sense when the company is doing well but is somehow overlooked by other investors and you have insider information that it is more de-risked than the market realizes.

But if the company is doing well and everyone knows about it, the valuation is probably sky-high. At that point, you might get better multiples putting that capital into new companies at lower entry prices.

At Series B, the calculus changes. The big winners are often clear by then. Product-market fit is achieved. You have a strong understanding of unit economics. Follow-on at the B in an existing portfolio company is usually better than writing a new Series A check. But at pre-seed and seed? The haziness makes diversification the better default.

What This Means for Angel Investors

If you are writing $1,000 to $10,000 checks, this framework is even more important. You are not going to own a meaningful percentage of any company. And that is perfectly fine.

Your job is to maximize multiples across your portfolio, not to maximize ownership in any single company. That means getting in at the lowest possible valuations, diversifying across many bets, and resisting the urge to pour follow-on capital into a company just because it is your "favorite."

The math is simple. Twenty investments at $5,000 each is $100,000 deployed. If one of those returns 100x, that is $500,000. The other 19 could all go to zero and you still made 5x on your total portfolio. That is the game.

At Angel Squad, members get access to co-investment opportunities in Hustle Fund's portfolio starting at $1,000 per deal. That low entry point is not a limitation. It is actually the ideal setup for maximizing multiples across a diversified early-stage portfolio. Learn more at Angel Squad.

Stop chasing ownership. Start optimizing for multiples.