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📰 Today's topic: The mistake that wipes out new angels before they get going

Here's the single biggest screw-up we see from new angel investors:

They fall in love with one company. And put way too much money into it.

It happens constantly. It's also completely avoidable.

Picture Sarah.

Sarah's a successful marketing exec with $50k set aside for angel investing. She meets the founders of a biotech company developing a revolutionary cancer treatment. The science is compelling. The market is huge. The founders are sharp.

She writes one $50k check.

Two years later, the treatment fails in clinical trials. The company shuts down. Sarah loses everything. Worse, she's so rattled by it that she never angel invests again.

Now imagine Sarah had written ten $5k checks instead. Even if 19 out of 20 went to zero, she'd only need one big winner to be fine. Probably more than fine.

That's the whole game.

Why concentration kills

Early-stage investing follows a power law. Most companies fail. A few do okay. A tiny handful return everything.

Roughly speaking, here's what happens across an angel portfolio:

• 60-75% return zero

• 20-30% return a few times your money

• 10% generate 20-100x

• The top sliver generates 100x+

Put your whole budget into one bet and you're not investing. You're playing roulette with extra steps.

The math actually works in your favor when you spread out. Say you do 10 checks of $5k each. Eight go to zero ($40k gone). One returns 2x ($10k back). One returns 100x ($500k back).

Total in: $50k. Total out: $510k. Net profit: $460k.

That's a 9x on your money with an 80% failure rate. But only if you have enough shots on goal to catch the winner.

The expertise trap

Here's the other thing that takes down new angels: thinking their day job translates.

Being a great doctor doesn't mean you can pick medical device startups. Being a sharp software engineer doesn't make you good at evaluating B2B SaaS. Being a marketing genius doesn't help you call winners in consumer apps.

Domain expertise helps. But execution, timing, competition, and team dynamics matter just as much. Most successful pros overestimate their ability to evaluate startups in their own field, concentrate too hard on their "expert" pick, then lose.

Even successful serial entrepreneurs can't reliably pick their next winner. So why would you?

What to do

If you're starting out, the move is boring and simple:

1. Set a budget you can fully afford to lose

2. Plan to invest in 50-100 companies over 10 years

3. Keep checks small enough to make that math work ($1k-$5k is plenty)

4. Don't let any one deal eat more than a sliver of your budget

A few small checks per year. Not glamorous. But it's the version that actually compounds.

What's your check sizing rule?

– Brian from Angel Squad

📕 Startup term you should know

Ever heard of Cost Per Acquisition (CPA)?

Think of CPA as CAC's more flexible cousin. While CAC is laser-focused on paying customers, CPA can track any conversion - a free trial sign-up, a demo request, a webinar registration, whatever matters to your funnel.

My insider scoop: CPA across the funnel helps optimize marketing spend. Brian Balfour recommends tracking "CPA for each stage of the funnel to identify bottlenecks and optimize conversion." For angel investors, companies with well-tracked CPA metrics at each funnel stage demonstrate sophisticated growth operations and are better positioned to scale efficiently.

Overheard in SF…probably

“Our pre-revenue, pre-product, pre-team unicorn is seeking a Series A. We're basically the Uber of thinking about things.”