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 gets overcomplicated by jargon and mystique. Strip away the complexity and it's straightforward: you give money to very early-stage companies in exchange for ownership.

The details matter, but the core concept is simple. Here's what angel investing actually is, explained without unnecessary complexity.

The Basic Transaction

What You're Buying: You're purchasing equity, meaning ownership stake in a private company. Usually this happens through SAFEs (Simple Agreements for Future Equity) or convertible notes rather than direct stock purchases. These instruments convert to actual equity later when company raises institutional funding.

Think of SAFE as IOU for future stock. You give company $1,000 today. When they raise their next funding round at specific valuation, your SAFE converts to stock at that valuation (often with discount or cap that benefits you). Until conversion happens, you don't own stock yet, you own right to future stock.

Why Companies Want Your Money: Early-stage companies need capital to build products, hire team, and acquire customers before they're profitable. Traditional bank loans don't work because companies have no revenue or assets to secure loans. Venture capital firms typically won't invest until company has more traction.

Angel investors fill this gap, providing capital when companies are too early for institutional investors but need money to make progress. You're taking substantial risk by investing before product-market fit is proven.

What Happens to Your Money: Company uses your capital for operating expenses: salaries, software, marketing, legal fees, office space (if any), and other costs of building business. Your money doesn't sit in bank account, it gets spent building company. This is why most investments return zero, the money is spent whether company succeeds or fails.

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." The spent capital is gone unless company eventually becomes valuable enough that your small ownership stake is worth more than you invested.

The Ownership Math

How Much You Own: If you invest $1,000 in company valued at $10 million (post-money valuation, meaning after your investment), you own approximately 0.01% of company. This seems tiny, but if company eventually becomes worth $500 million, your 0.01% is worth $50,000, that's 50x return on your $1,000.

The math works through massive valuation increases, not through owning large percentages. You're betting small amounts on long-shot possibilities of huge outcomes.

Dilution Over Time: As company raises more funding, your ownership percentage decreases. This is called dilution. If company raises Series A at higher valuation, new investors buy shares, and everyone's percentage ownership goes down proportionally. Your absolute number of shares doesn't change, but they represent smaller percentage of larger pie.

Dilution is normal and expected. It's not bad if company value is increasing faster than your ownership is diluting. You'd rather own 0.005% of $1 billion company than 0.01% of $10 million company.

Exit Scenarios: You only realize returns when company has exit event, either acquisition (larger company buys startup) or IPO (company goes public and you can sell shares). Most exits are acquisitions. IPOs are rare for early-stage investments.

If there's no exit, your ownership is worth nothing regardless of percentage. The company either needs to be acquired or go public for you to convert ownership to cash.

The Risk Profile Reality

Base Rate Failures: 60-70% of angel investments fail completely. The companies shut down. Your capital is gone. 20-30% might return your money back (1x) or modest multiple (2-3x). Only 5-10% return 5x or more. Maybe 1-2% return 10x+.

These failure rates are consistent across portfolios. Your skill influences outcomes at margins but doesn't fundamentally change base rates. Accept this upfront rather than believing you'll outperform dramatically through superior judgment.

Why So Many Fail: Early-stage companies face existential risks constantly. Market might not want product. Competition might be too strong. Founders might quit or fight. Technology might not work. Timing might be wrong. Funding might dry up. Execution might be poor. Any of these can kill company regardless of initial promise.

You're investing before most of these risks are resolved. You're betting that this specific company will navigate all these challenges successfully. Most don't.

The Portfolio Approach: Because individual outcomes are so unpredictable, you need portfolio of 15-20+ investments minimum. You're not trying to pick the winners, you're building portfolio where some massive successes compensate for many failures.

Professional VCs with decades of experience need 20-30 investments per fund for diversification. You need at least as much because you have less experience than they do.

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." That bigger portfolio requires accessible check sizes like $1,000 per investment rather than traditional $25,000+ minimums.

The Time Horizon Reality

Seven to Ten Years Minimum: Angel investments are illiquid for 7-10 years typically. You cannot sell your ownership easily. There's no market for early-stage startup shares like there is for public stocks. Your capital is locked up until company exits or fails.

Seven years is enormous portion of your life. Your circumstances will change. You might need capital for house, kids' education, medical expenses, or other priorities. Only invest money you genuinely won't need for decade minimum.

The Waiting Game: Most of that 7-10 years involves waiting with limited information. Companies send quarterly updates (maybe). You're not involved in daily operations. You have no control over decisions. You just wait to see whether company succeeds or fails.

This is psychologically difficult. Years 2-5 are particularly hard because nothing happens. Companies are building but no exits occur. You have no idea which investments will succeed. The boring uncertainty tests patience.

What Angel Investing Is NOT

Not Stock Trading: You cannot buy and sell angel investments like public stocks. There's no liquidity. No daily pricing. No way to exit until company exits. This is patient capital with no shortcuts.

Not a Wealth Building Strategy: For most people, angel investing won't create meaningful wealth. Expected returns are modest (2-3x over 10 years for good portfolios). You're taking high risk for returns that index funds might match with much lower risk.

Do it for education, network building, and participation in innovation. Don't do it expecting to get rich.

Not Passive Investing: While you're not managing companies, you need to evaluate opportunities regularly, attend educational programming, and help portfolio companies occasionally. It requires ongoing engagement, not set-it-and-forget-it approach.

Not Accessible to Everyone: Accredited investor requirements ($200k income or $1M net worth excluding home) limit participation. Need for risk capital you can lose completely excludes many people. This isn't fair but it's current reality.

The Modern Infrastructure

How It Actually Works in 2026: Most individual angels invest through communities that aggregate capital via SPVs (Special Purpose Vehicles). Your $1,000 combines with others to create $20,000-50,000 investments that founders take seriously.

Communities handle all paperwork, due diligence infrastructure, and tax documentation. You receive consolidated K-1 forms rather than separate documents from each company. The operational burden is minimal.

Angel Squad exemplifies modern infrastructure: 2,000+ members across 40+ countries invest in opportunities from Hustle Fund's curated pipeline of 1,000+ monthly applications. The $1,000 minimums enable proper portfolio construction without massive capital requirements.

Virtual First Operations: Everything happens digitally. Deal flow arrives via email. Educational programming happens via Zoom. Investment decisions and document signing happen electronically. Geographic location is irrelevant.

This democratization is recent (last 5 years). Previously, angel investing required living in tech hubs and having extensive networks. Now you can participate from anywhere with internet connection.

Who Should Angel Invest

Good Candidates: Successful professionals who meet accredited requirements, have $15,000-20,000 they can lose completely over 2-3 years, can commit 3-5 hours weekly consistently, are comfortable with uncertainty and high failure rates, and have realistic expectations about modest returns.

Also people who value learning about startups and building networks in innovation ecosystem even if financial returns are mediocre.

Bad Candidates: Anyone who needs capital back within 5 years. Anyone who would be financially stressed by losing invested amounts. Anyone expecting high returns or quick profits. Anyone who can't handle watching most investments fail. Anyone looking for active management role in companies.

The Honest Assessment: Most successful professionals would be better off financially in index funds. Angel investing is expensive education with potential for decent returns if you're disciplined and lucky. It's not optimal wealth-building for most people.

Do it because you want to learn how startups work and participate in innovation ecosystem. Don't do it expecting to get rich or as primary investment strategy.

Common Misconceptions

"I Need to Know Founders": No. Communities provide curated deal flow from professional screening. You don't need personal founder networks to access quality opportunities in 2026.

"I Need $100,000+ to Start": No. $1,000 per investment through communities enables proper portfolio construction with $15,000-20,000 total capital over 2-3 years.

"I Need to Be in Silicon Valley": No. Virtual infrastructure makes location irrelevant for individual angels building portfolios through communities.

"I Can Pick Winners": No. Even professional VCs with decades of experience can't reliably predict which specific companies will succeed. You need portfolio diversification, not picking ability.

"It's Glamorous and Exciting": No. Mostly it's reviewing opportunities, attending educational sessions, and waiting years for outcomes. The actual experience is much more boring than it appears on social media.

As Shiyan Koh, co-founder and GP of Hustle Fund, notes: "Great founders can look like anyone and come from anywhere." The reality of angel investing is less about glamorous networking and more about systematic portfolio construction over many years.

The Bottom Line in Plain English

Angel investing is buying small ownership stakes in very early-stage companies that will mostly fail but might occasionally succeed dramatically enough to compensate for losses. You need 15-20+ investments over 2-3 years, must wait 7-10 years for outcomes, and should expect modest returns (2-3x) if you're successful.

Modern infrastructure makes it accessible to successful professionals meeting accreditation requirements through $1,000 minimums and virtual operations. But accessibility doesn't mean it's right for everyone. It's high-risk, illiquid, time-consuming, and usually produces worse risk-adjusted returns than index funds.

Do it for education and participation in innovation, not wealth building. Understand what you're getting into before committing capital. Most importantly, maintain realistic expectations about outcomes, timeline, and your own ability to predict success.

That's angel investing in plain English, no jargon required.