Angel investing tips: 4 lessons from a startup operator

Brian Nichols is the co-founder of Angel Squad, an angel investing community where aspiring and active angels learn from Hustle Fund’s approach, review curated deal flow, and connect with peers.

Working inside a startup gives you firsthand experience with customers, growth, and execution. Evaluating one as an investor brings a different set of questions. In our 2022 conversation, operator Karin Dillie described how she built that skill alongside her full-time career. Her experience gives other operators four practical learning habits to use before committing capital.

Karin’s move from operator to investor

At the time of our conversation, Karin was vice president of partnerships at Recurate and had built her career in digital resale. She’d also worked at The RealReal during its early stages. She understood startup operations, but found investing opaque and investor networks difficult to enter.

Karin made her first angel investment in mid-2021. A business school friend’s tweet about the deal went viral, and a New York Times story about accessible angel investing featured Karin alongside our co-founder and general partner Elizabeth Yin. Being featured alongside Elizabeth prompted Karin to learn more about Hustle Fund. She joined our community in 2021.

She enjoyed hearing directly from founders and discussing their businesses with other investors. As Karin put it in that conversation, “Founders are just fantastic, dynamic people. I underestimated how much I would love hearing from them.”

Four angel investing tips you can practice

1. Review live deals before you know the outcome

Karin found real-time deal discussions useful because the future was still unknown. A case study can explain how a company succeeded or failed. A live pitch asks you to form a view with gaps in the evidence and no ending to guide you.

For an operator, that means widening your questions beyond the function you know. You may understand how the product is built while knowing less about how customers buy it, how long a sale takes, or what the company needs to accomplish next.

Before hearing other investors’ conclusions, write a short practice decision. You can do this without making an investment:

• Your current view: Would you invest, pass, or need more information? Name the reason.
• The evidence: Separate what the company has demonstrated from what the founder expects and what you’re assuming.
• The open question: Identify the missing fact that could change your view.

For example, a persuasive product demo might leave you interested but undecided because no customer has paid yet. Record that uncertainty. After the discussion, note whether you learned something about customer demand or were mainly influenced by the room’s excitement.

Our co-founder and general partner Elizabeth Yin writes in Democratizing Knowledge (Hustle Fund, 2021), “The more disciplined you are in your thought process/rubric, the more you can improve over time.” A rubric is a consistent set of questions you use to assess a deal. Our investment memo template gives you a place to record the answers.

Return to your notes when new information arrives. Assess whether your reasoning held up, including which risks you noticed and which assumptions you missed. A good outcome alone doesn’t prove that your original reasoning was sound.

2. Compare business benchmarks in context

Karin said reviewing multiple pitch decks helped her understand the milestones a startup should be working toward. That learning also fed back into her operating work at Recurate, which had raised a seed round, an early-stage funding round, when she joined.

A benchmark is a reference point for assessing progress. Its usefulness depends on what you’re comparing. A company with its first paying customers and one with years of renewals have different evidence available. A marketplace and a subscription software company earn revenue differently.

Start with the company’s stage, customer, and business model. Then ask what supports its forecast and what progress the new funding is meant to buy.

Consider a hypothetical seed-stage resale software company forecasting growth from new brand partnerships. This example is unrelated to Recurate’s actual results. A partnerships operator might ask how many agreements are signed, how long integrations take, and whether launched partners keep using the product.

Those questions make a growth forecast more concrete. Use them to separate three things:

• Progress today: What customer, usage, or revenue evidence already exists?
• The next milestone: What must the team achieve before its cash runs out?
• The dependency: Does the plan rely on unsigned customers, unbuilt features, or financing that hasn’t happened?

Keep the comparison specific. A deck’s projected revenue line tells you less than the assumptions behind it. Repeated deal review can help you recognize those assumptions, but a familiar-looking chart still needs supporting evidence.

3. Explore unfamiliar sectors with clear limits

Karin noticed that people’s investing interests often reflected their personal experience and comfort level. Hearing other perspectives encouraged her to look beyond digital resale.

You can broaden what you learn about while keeping clear limits on what you’re ready to evaluate. Curiosity about a sector is a reason to ask questions. Writing a check requires a separate decision.

Make two short lists for an unfamiliar business. First, name the areas your operating experience helps you assess. Then name the areas where you lack the knowledge to form a sound view.

A software operator reviewing a healthcare startup might understand onboarding and product usage. That experience alone doesn’t establish clinical effectiveness, regulatory feasibility, or a hospital’s willingness to buy. Those questions need relevant evidence and qualified independent input.

Choose one knowledge gap and learn enough to ask a better question. An experienced sector specialist can help you understand the issue; their confidence doesn’t eliminate the need for diligence, the work of investigating the business and investment. If a decisive question remains unresolved, passing or continuing to observe is a valid choice.

Your investment thesis, the written boundaries and reasons behind what you invest in, can evolve as your understanding grows. Expand it because you have better evidence and judgment, rather than because an unfamiliar opportunity sounds exciting.

4. Use different perspectives to challenge your assumptions

Karin’s cohort included people from early-stage startups, later-stage companies, and public tech businesses, as well as doctors, lawyers, and other professions. Their questions challenged her own approach to evaluating companies.

That variety gives you more ways to examine the same business. Our co-founder and general partner Elizabeth Yin captures the point in Democratizing Knowledge (Hustle Fund, 2021): “Investors use their life perspective to assess.”

Give peers a specific assumption to examine. For a hypothetical healthcare software pitch, different backgrounds could produce different questions:

• A clinician: Does this workflow fit how care is delivered?
• A sales operator: Who controls the budget, and how does purchasing happen?
• An engineer: Can the product work with the customer’s existing systems?

These are examples of useful questions, not claims about what every person in a profession knows. Ask about relevant experience before treating someone’s view as informed input.

In Angel Squad, peer discussions and education give operators a place to hear how others approach startup evaluation. Use that discussion to surface gaps and counterarguments. Each investor still owns their decision.

After a conversation, write down the strongest objection and the evidence needed to address it. Agreement across the group doesn’t establish investment quality.

The U.S. Securities and Exchange Commission (SEC) lists unregistered-offering red flags, including social-consensus tactics and attempts to exploit trust within a group. Relationships help you learn; they don’t replace independent diligence.

Keep learning separate from committing capital

Karin valued the learning and sense of belonging she found in our community. Those benefits matter on their own. They don’t establish an investment’s likely return or make a financial loss easier to afford.

Startup investing is speculative. Most of your bets may fail, and an individual investment can lose all its value.

Private investments can also be difficult to sell, require an indefinite hold, and provide less information than public investments. The SEC explains these private-placement risks.

Before committing capital, your process needs to cover your ability to absorb a total loss, the eligibility requirements for the particular investment, the investment documents, and independent diligence on the business. A curated opportunity or a compelling pitch doesn’t complete that work for you. Our complete angel investing guide explains the access routes and risks in more detail.

If you want to practice evaluating startups alongside other operators and investors, apply to Angel Squad.

This is general education, not investment, legal, or tax advice. Startup investments are speculative, illiquid, and may result in a total loss. Seek independent review from qualified investment, legal, and tax professionals for your circumstances and the specific offering.