How I started angel investing by writing $1k checksFeatured

One of the first questions I’m asked about angel investing is how I got started. Before I started writing checks, I had to overcome some of my preconceptions about angel investing. I’ve learned a lot building an angel investing portfolio with 6x returns. Hopefully, the following helps demystify angel investing so that if you’re interested in getting started, it’s a little easier for you.

You don’t need to be super rich to be an angel investor

About a decade ago, I noticed my friends were doing a lot of angel investing. My mental model at the time was that you have to write $25k checks (or larger!) to be an angel, but my friends were investing for as little as $1k per company. My friends didn’t have a ton of money; they were founders with very little liquidity. Their startups were valued high enough to make them accredited.

You can get started without a $1 million net worth. In 2020, the SEC updated the accredited investor guidelines so that you can become accredited by getting a Series 7, 65 or 82 license. At Hustle Fund, we cover the cost of the Series 65 for our Angel Squad members.

I talk a lot about writing $1k checks because I think it’s important for people to know that angel investing is more accessible than they think. It’s the starting point that led me to start a fund with Eric Bahn and Shiyan Koh, two good friends from college.

You are more than your check size

$1k checks may not sound like much, especially when a company is raising a $500k or $1m round. Early on though, founders rely heavily on angel investors, not just for capital but for help. Can you share your tactical knowledge of marketing, sales, hiring or product with a founder? Can you connect founders to other investors or people that can help them achieve their goals? If you can provide help for free, that’s huge.

An additional benefit to putting time into the startups you invest in is the opportunity to get the hands-on experience required to become a better investor. Investing requires practice. To practice, you need a feedback loop. As you work with founders, you will start to understand the business and founders better, and update your investing rubric.

Build a network as you go

We started Hustle Fund with a question: why do so many startup founders look the same? I think the same can be asked of investors. A big part of the problem is that networks are closed, or at least perceived to be closed.

Being an angel investor is a great way to network, even if you don’t have a large network yet.

More than half of the people we welcome to our Angel Squad community come from outside of Silicon Valley, and many people come from outside of tech. About half of the people who join haven’t done any angel investing before.

You’ll find that learning opportunities, deal flow, and jobs materialize as you build your network.

There’s a lot of networking in public that happens on Twitter.

We want to open up knowledge and networks globally.

Create your own goals

In venture capital, we talk a lot about choosing companies based on whether or not they can get 100x returns. One of the great things about being an angel is that you get to determine what your goals are. Returns may not be your top priority. Maybe you want to support female founders, learn through working with companies, or focus on funding the future you want to see.

Starting out, I invested in 7 companies in 3 years. 3 of those companies shut down before I had made any money (even on paper!) on the others. While we optimize for returns, the reality is that you can lose all the money you invest in startups. I invest knowing that it could all go to 0, and with the hope that the risk that I take on provides an outsized return down the road. And with that return, I hope to make a bigger impact on the world. Being anchored in a bigger goal helps me maintain perspective.

Failure is expected

I wish I knew starting out that 50%+ of your portfolio going to 0 is expected. As an investor, your goal isn’t for all of your bets to go to the moon. Your investments will fall into 4 buckets:

1) Non-returners

2) Low returners

3) Good returners

4) Excellent returners

Most of your investments will fall into the first category. And that’s ok! It’s part of the game. The low returners won’t yield much, and even good returners don’t really matter unless you have a lot of them. For this reason, experienced investors focus on their excellent returners.

You may not know which category a company falls into quickly. It can take 3-5 years to really know how a company is doing. This is another reason why it’s important to work with founders early to see how they perform and help them build momentum.

I could write a lot more about this (and often do on Twitter!) but for now, I hope that this has been helpful in demystifying angel investing a bit. If you’re interested in getting started, you can learn more here.

dipishapatel's profile thumbnail
love this!!
elizabethyin's profile thumbnail
thank you!
7cmiller's profile thumbnail
Thanks so much for sharing! I've been really curious about whether this process would be accessible for folks with less than $25k to invest at a time. Appreciate the clear, structured walk-through of this topic.
haleymbryant's profile thumbnail
Thanks for sharing Elizabeth!! It’s been so awesome to learn about angel investing from you and the entire Hustle Fund team through Angel Squad πŸ’›
annajmcdougall's profile thumbnail
I'd be interested to know more about how this works in my country - Germany. A lot of information I find is US-based, which is great for y'all but I have no idea how much is transferable to the European market.
elizabethyin's profile thumbnail
Great q! I do think a lot of this is transferable in that there's even *less* capital available in Europe, so even easier to win deals. That being said, in Germany, in particular, the regulatory is harder. You need a Notary to sign off on deals, and that drives up costs such that it may not be practical to do micro angel investing. That's the part I would look into.
annajmcdougall's profile thumbnail
Thank you for the insight! That sounds about right πŸ˜‚
amandajude's profile thumbnail
I never knew it could be so approachable and I’m excited to get started. Thank you!
michellebanham's profile thumbnail
Thank you! My company is currently looking for angel investors and would love a diverse cap table with individuals from a range of different social and ethnic backgrounds and of different genders, sexual orientations, etc. - diverse backgrounds and perspectives will help us learn and grow …. By sharing this article you’re helping us see how anyone can invest. It’s awesome! Thank you ☺️
NicoleGreen's profile thumbnail
Love this. Also had no idea about the 2020 update
wenhsu's profile thumbnail
Thank you for writing this post! It's liberating to know that I can be an angle investor to shape the companies (or cause) I care about. Very insightful!
artivilla's profile thumbnail
Of the members who join, what % are going down the new members are applying for the Series 7, 65 or 82 license (if finance roles are not their core role). I think a lot of people interested might struggle to find so much time for these licenses. It's still better than nothing until the SEC get's their life together.
elizabethyin's profile thumbnail
Good q - studying for these exams is still admittedly time consuming :( As such, within Angel Squad, right now, it's still a very small percentage of ppl who join based on these exams. :( I do think there's a lot that we can do to make the test preparation part easier, so we still have our work cut out for us.
amandajude's profile thumbnail
Just applied! Thanks for sharing your angel squad with your Elpha squad. Very excited for this journey!!!
elizabethyin's profile thumbnail
thank you!
JennyLuu's profile thumbnail
Whoa.. loved this and now I'm going to look into the Series 65 exam. Thanks for sharing!