Friends,

There are many good reasons to angel invest and one quite bad one.

Some good ones: you get to learn from great founders, meet interesting people, discover new technologies early, build a valuable network, hone your investing abilities, and burnish a reputation.

A bad one: you hope to make life-altering money.

We have all heard stories of small checks turning into multi-million dollar windfalls. It can happen, yet no one should expect such an outcome. Investing in tech companies is highly competitive. To access promising deals as an angel, you need to move quickly, avoid overcomplicating the process, and prove your worth. Even then, the asset class’s inherent risk means your chances of returning your capital, let alone multiplying it, remain slim.

All of which is to say that if you want to angel invest, do it with intelligence, intention, and rigor. Doing so may save you hundreds of thousands of dollars of incinerated capital and will give you the best chance of maximizing the far-reaching benefits of engaging with the private markets.

For those interested in exploring angel investing, we have spent months assembling a 17,500-word guide. It’s informed by interviews with 14 highly effective angels – both past and present. This group includes startup founders, executives, operators, and fund managers, several who have backed exceptional companies like Canva, Oura, Reddit, Glean, Ro, Affirm, Mint, and Meter as individuals.

What to expect

1. Master the unique advantages of operating as an angel. Though angels invest in the same companies as professional VCs, they are playing a fundamentally different game. That’s a good thing – there are considerable advantages to operating as an individual investor. In this edition, you’ll learn how to use them to their full effect.

2. Understand your motivations to maximize results. Angels invest for different reasons. All are, at least to some extent, motivated by the prospect of financial returns. However, the desire to learn from great founders, establish a track record, or expand one’s network is also compelling. Understand what’s driving your investment so you can direct your efforts appropriately.

3. Learn how to structure your investing. A common pitfall for new angels is issuing a flurry of checks that you quickly come to regret. To avoid burning through your personal capital, create a structure and process for yourself. We share experienced angels’ most thoughtful recommendations.

4. Discover how to start sourcing. As a new angel, it can feel daunting to know where to begin. How do you start finding potential investments? How do you build relationships with co-investors? Our subjects share how they began their angel journeys and recommend the best steps for newcomers to take.

5. Understand how to go from lone wolf to building a tribe. You can thrive operating independently, but many angels value working with others. Understand the benefits and trade-offs of investing with friends, scouting for a venture fund, or joining a collective. You’ll also discover how other collectives run and why you might want to build one of your own.

This guide is the result of months of interviewing and research. It is designed to deliver the best advice and strategies from elite angels in a single edition.

Table of contents

Step 1: Lay the foundations

• Study startups and venture capital

• Make it a habit to check out new products and companies

• Start a fantasy VC portfolio

• Build connections and community

Step 2: Know your motivations

• Making money

• Status

• Establishing a track record

• Expanding your network

• Differential learning

Step 3: Make a plan

• Raise a fund…from yourself

• Think about check sizing and cadence

• Set a basic, repeatable process

• Sketch a strike zone

Step 4: Start sourcing

• Let the world know

• Leverage your unique network

• Keep your eyes and ears open

• Capitalize on perceptual benefits for cold outreach

Step 5: Play to your strengths

• Move fast

• Leverage your superpowers

• Let the founder lead

• Recognize your limitations

Step 6: Build a tribe

• Invest with friends

• Become a scout

• Create a collective

Thank you to Art Levy, Aydin Senkut, Brett Berson, Charles Hudson, Charley Ma, Chris Quinn, Cristina Cordova, Matthew Roberts, Neil Parikh, Nikunj Kothari, Pranav Sood, Rohini Pandhi, Sohail Prasad, and Terrence Rohan for sharing their insights for this issue of the Investors Guide series.

Step 1: Lay the foundations

It is probably not a good idea to begin angel investing without meaningful interest and knowledge about the world of startups. If you’ve spent your years as a successful investment banker, management consultant, or doctor, for example, but have the vague sense that backing young tech companies might prove lucrative, pause before putting your money to work. Monumental windfalls are certainly possible but very unlikely, especially without a sense of the terrain.

To test whether angel investing is likely to be worth your time, take a few basic steps first. Given that Generalist readers tend to have spent years working in tech, building companies, or investing in them professionally, we’ll cover this step in brief:

1. Study startups and venture capital. Like any industry, the tech ecosystem is full of intimidating-sounding terms of art, valuable received wisdom, and useful heuristics. It takes years to get a sense of all of this, but even just a few months of serious reading will make a real difference. Study the stories of singular technology companies, analyze the psychologies of great founders, learn the fundamentals of venture capital, and keep track of promising startups. There are many incredible resources beyond The Generalist, of course. I’d especially recommend Paul Graham’s essays, the Acquired Podcast, and fellow Substackers Not Boring and Lenny’s Newsletter.

2. Make it a habit to try out new products. Get in the flow of discovering and playing with new products. You’ll start to get a sense of what you gravitate towards, where the zeitgeist is, and what feels fresh rather than derivative. To start, review recent fundraising announcements on Techcrunch, click around on Product Hunt, see what tech people are talking about on X, and look over the latest YC batches.

3. Build a “fantasy” VC portfolio. Create an imaginary venture fund for yourself, backed by however much capital you’d like. Then, practice deploying it. Which company would you invest $1 million into? Which would you invest $10 million into? Force yourself to reach conviction, timestamp when you do, and follow the results. You’ll start to build your investment taste and internalize the uncertainty and long timelines inherent in this asset class.

4. Make connections and establish a community. Even if you don’t work in technology, it’s more possible than ever to find people who share your passion for the sector. Without working at a tech company, the best way to build these kinds of connections is by writing or building online. Your work generates a natural magnetism that attracts interesting, aligned people over time.

Perhaps you have not mastered this pre-work (many of these are infinite games), but a degree of familiarity with the space and facility navigating it will save you both time and money. Now, onto the real work.

Step 2: Analyze your motivations

Why do you want to angel invest? It is worth asking yourself this question and interrogating your response deeply before deploying personal capital. There are many more prudent and, likely, more lucrative ways to invest. In interviewing past and current angels, a range of different motivations arose.

Making money

In an appearance on Conan, comedian Bo Burnham shares his advice for young people who want to emulate his success. “Well, you’ve got to take a deep breath and just…give up,” he says with a mix of perfect sincerity and comedic timing. “The system is rigged against you: your hard work and talent will not pay off. Don’t take advice from people like me who have gotten very lucky – we’re very biased. Taylor Swift telling you to follow your dreams is like a lottery winner saying, ‘Liquidize your assets, buy PowerBall tickets – it works!’”

If you’re interested in angel investing, it is at least, in part, because you have heard tales of fabulous wealth created from relatively small sums. Andy Bechtolsheim’s early bet into Google that minted billions. Peter Thiel’s $500,000 that secured 10.2% of “The Facebook.” Jason Calacanis’ $25,000 investment in Uber that turned into $100 million by 2017. Though seductive, you should treat these stories with the same degree of wariness with which you would survey Bo Burnham’s PowerBall winner; yes, it can happen, but the odds are not in your favor.

Aydin Senkut, Felicis

Angel investing is a lot like the movie business. Everyone wants to be Steven Spielberg, but the reality is brutal. It's a binary function – until you get that first hit, and it needs to be a mega-hit, you're not going to make it. Everyone wants to be that successful solo angel investor, but they're the 1%. By default, for 99% of people, the odds are incredibly slim – though I'd never say zero.

Simply breaking even on your angel investing would put you far ahead of most other practitioners. And locking up your capital for a decade or more, in a high-risk asset, for a 0% return is not particularly attractive to most people.

Unless you have an established track record, a distinctive edge, or the Midas touch, you should expect to lose money – even if you hope to make a lot.

Rohini Pandhi, Mercury

I always say when people want to get into angel investing, "Just put in as much as you're willing to put into Vegas." I wouldn't go any more beyond that, because I don't think there's that much upside until you become a fund manager, or the economics materially change for you—like, are you not going to get diluted? Do you have time to make sure that you get pro rata on every single next round and things like that?

A financial advantage of angel investing is that it can diversify your exposure. Founders and operators often have the majority of their wealth tied to a single company or sector. Although personally investing in startups further concentrates your capital in high-risk tech investments, it does offer access to other industries. This was what initially drove Casper and Slingshot AI founder Neil Parikh to begin investing:

Neil Parikh, Slingshot AI

When I started, it was about diversification and learning. I wanted to learn about totally different businesses, as I was highly indexed into consumer DTC. So, I ended up not really investing a lot into DTC brands. There are probably five or ten in my portfolio, but for the most part, I was like, "Okay, I want to go learn about and invest in deep tech or synthetic biology, where I'm going to learn a lot." Thank God I did because DTC fell off a cliff for most people.

The tricky thing is that you usually get shown deals that are in your core area of specialty. It’s a fair strategy to say, "I get to pick from the best companies in my category." But then you're not hitting your diversification goals. Even if you invested in all of the very best fast commerce companies, they would all still be a zero.

Status

For at least 10 years, angel investing has connoted high status in tech circles. In a 2015 New York Times article, Sam Altman, then President of YC, summarized the observed as much. “Seed investing is the status symbol of Silicon Valley,” he said. “Most people don’t want Ferraris; they want a winning seed investment.”...