Investing mindset: better habits for angel investors

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.

A convincing founder can make an uncertain investment feel obvious. A disappointing update can make your original judgment feel foolish. Both feelings deserve a pause. Andy Louis-Charles’s experience offers a useful starting point for building habits that keep you curious and disciplined throughout an angel-investing career.

What an investing mindset means for angels

An investing mindset is the set of habits you use to make decisions about risk, evidence, money, and time. It includes patience, independent judgment, and a willingness to change your view when the facts change.

Those habits apply across investing. Angel investing, where you put your own money into private startups, often means making a decision with limited information, then waiting years to learn the financial outcome.

You also have less freedom to change course after investing. The U.S. Securities and Exchange Commission’s private-placement risk guidance warns that investments in private placements under Regulation D can result in a total loss and may need to be held indefinitely. These offerings also have fewer required disclosures than registered offerings.

We approach that uncertainty with a repeatable decision process. You can learn about customers, examine a founder’s decisions, and decide how much risk fits your circumstances. Record the unanswered questions before you commit money.

Keep a beginner’s mindset as your experience grows

In our interview published on March 28, 2023, Andy Louis-Charles had more than a decade of angel-investing experience. He was then Chief Strategy Officer at Custom Ink and an early member of our community. He still wanted to sharpen his thinking and learn from other investors.

During that interview, Andy described how unpredictable early-stage outcomes can be and urged investors to stay humble: “You need that beginner’s mindset.”

The first conversation with Andy explores why he valued learning alongside other angels even after years of investing.

A beginner’s mindset means allowing a new company to challenge an old assumption. Your experience can help you ask sharper questions, recognize familiar problems, and understand what a founder is attempting. It can also tempt you to treat the last company you saw as the template for the next one.

Suppose you’ve spent your career selling software to large companies. A startup sells to small business owners instead. Your experience with procurement may help you assess a sales process, but your assumptions about contract size, purchasing authority, and customer support may fit poorly.

Write down which parts of your experience apply and which parts need a fresh explanation. This gives your expertise a defined role and leaves room to learn.

Write down what you believe before you invest

A pitch gives you a story. Your job is to identify which parts of that story have evidence behind them and which parts remain assumptions.

Our co-founder and general partner Elizabeth Yin writes in Democratizing Knowledge (Hustle Fund, 2021, p. 131): “The more disciplined you are in your thought process/rubric, the more you can improve over time.” A rubric is a consistent set of criteria for evaluating a decision. Writing yours down makes it easier to spot gaps and revisit your reasoning.

Before committing to a startup, record five things:

1. Your investment thesis. Explain why this company could become a valuable business. Name the customer, the problem, and the reason the team may be able to solve it.
2. The evidence available. Separate what you’ve observed from what the founder expects. A paying customer, a repeat purchase, and a forecast are different kinds of information.
3. The unresolved assumption. Identify the uncertainty that matters most to your decision. It might concern customer demand, the cost of serving customers, or the team’s ability to sell beyond its personal network.
4. What would change your view. Name a concrete development that would weaken or strengthen the thesis. Avoid a vague promise to become more cautious if things look bad.
5. The portfolio fit. Record why this investment, at this size, belongs alongside your other investments and financial commitments.

For a hypothetical software startup, your thesis might depend on customers renewing after an initial trial. Early enthusiasm supports interest in the product. It leaves willingness to pay over time unresolved. A useful note names that distinction and the evidence you’d need before investing.

Our investment memo template gives you a fuller structure for recording the business, risks, terms, and decision. Keep the writing proportionate to the opportunity. The purpose is a record you can understand later, including the reasons you passed.

If you can’t explain why you’re investing without repeating the founder’s pitch, spend more time on the unresolved assumption. Passing is a valid outcome of that work.

Seek disagreement without handing over your judgment

Andy described relying on people in his cohort and trusted network to understand industries outside his own. The useful lesson is to find the knowledge you’re missing. Your biggest investment outcome could come from a familiar industry or an unfamiliar one; either way, you need diligence, the work of examining a company and investment before committing money.

Start with your own written view before asking someone else for theirs. That makes it easier to notice whether new information changed your reasoning or you were persuaded by someone’s confidence.

Ask for a specific objection. A person with relevant experience can explain why a customer might refuse to buy, why a sales process takes longer than expected, or why a product is difficult to deliver. Those answers are more useful than general enthusiasm about a market.

For example, you might like a startup that sells scheduling software to clinics. Someone who has operated a clinic could help you understand who controls the budget, what the existing workflow involves, and how disruptive a switch would be. A broad claim that healthcare software is growing doesn’t answer those questions.

In Angel Squad, our education, peer connections, and curated deal context give you ways to encounter other investors’ reasoning. Treat that reasoning as input to your own decision. Membership doesn’t guarantee an investment allocation or a financial outcome.

Be equally clear about the limits of your sources. A successful founder may know one business deeply. An experienced investor may have a different budget or strategy. A sector specialist may be attached to the company. Ask what experience supports the view and where uncertainty remains.

Learning outside your field can broaden your judgment. You can also decide that a company requires knowledge you don’t have and pass. Curiosity doesn’t create an obligation to invest.

Decide how much uncertainty your portfolio can carry

In the same March 2023 interview, Andy said, “It’s not about being right often. It’s about being right big.” A few large outcomes can have an outsized effect on a startup portfolio. There’s no guarantee that your portfolio will contain them or that they’ll cover your losses.

That uncertainty makes the size of each investment part of the decision. In Democratizing Knowledge (Hustle Fund, 2021, p. 130), our general partner Elizabeth Yin urges angels to “Select a portfolio.” Her point is to consider how investments work together instead of putting too much faith in one company.

Set your limits before a compelling opportunity arrives:

• Total startup capital. Decide how much money you can afford to lose and leave inaccessible without disrupting essential expenses or other financial goals.
• Single-company exposure. Set a limit that prevents one persuasive pitch from consuming money intended for several decisions.
• Shared risks. Look for dependence on the same customer type, technology, distribution channel, or funding environment across different startups.
• Future commitments. Decide whether you intend to keep capital available for later investments. A follow-on investment, an additional investment in a company you already own, deserves a fresh assessment.

Different company names don’t necessarily mean different risks. Several startups may all depend on the same large platform for customers. Others may all need new funding at roughly the same time.

Build your plan for losses, including the possibility that most startup bets fail. Diversification can spread exposure, but it cannot assure a profit or prevent losses. There’s no universal portfolio size that makes angel investing safe.

Use evidence to respond to fear and excitement

A closing deadline sets the time available for a decision. It doesn’t establish the investment’s quality or resolve the uncertainty in your thesis. Fear of missing out can make it harder to maintain that distinction.

When the available time is too short to understand a material risk, you can pass. Keep your budget and criteria in place even when a respected investor participates or friends are enthusiastic.

After investing, patience has a more active role. Read company updates against your original assumptions. Pay attention to what customers do, how the founder responds to setbacks, and whether the company’s use of cash supports its priorities.

A missed sales target is worth understanding. So is a founder’s explanation. A clear account of what happened, what changed, and what the team will do next gives you more to work with than a confident claim that everything remains on track.

Your view of the company can change even when you can’t sell the investment. You can record that change, reconsider a future follow-on, or offer a useful introduction within the founder’s priorities. Respect confidentiality and the limits of your role. Investor involvement doesn’t give you day-to-day control of the business.

Learn from your decisions before the final outcome

Startup outcomes can take years. You can review the quality of your reasoning sooner.

Jonathan Baron and John Hershey’s outcome-bias experiments found that people evaluated decisions more favorably when the results were favorable, even though they had the information available to the original decision maker. The experiments involved medical decisions and monetary gambles, rather than startup portfolios. We apply the lesson by reviewing the original reasoning separately from the result.

A company can succeed for a reason you never anticipated. A well-reasoned decision can still end in a loss. Both deserve an honest review.

At a regular interval, return to your decision notes and compare them with what you’ve learned:

1. Reconstruct the original decision. Use the information you had then. Leave later discoveries out of your assessment of what you could reasonably have known.
2. Identify the assumption that changed. Did customers behave differently? Did the team execute differently? Did you miss evidence that was already available?
3. Separate a gap in your process from unresolved uncertainty. Skipping a relevant customer conversation is something you can address. An unforeseeable event may offer less useful feedback about the original decision.
4. Make a specific adjustment. Add a question, improve the evidence you request, or narrow the circumstances in which you’re willing to invest.

Review passes as well as investments when reliable information becomes available. Be careful about drawing broad conclusions from a handful of companies or only the successes people discuss publicly. One result is a small amount of evidence about your ability.

You can practice this routine before writing a check. Form a view of a pitch, record it, compare reasoning with another investor, and revise the assumptions that need work. Keep learning separate from any pressure to deploy money.

If you want to develop that judgment alongside other investors, apply to Angel Squad.

This material is for education and does not constitute individualized investment, legal, or tax advice. Startup investments are speculative, illiquid, long-term, and may result in a total loss. Seek independent advice from qualified investment, legal, and tax professionals for your circumstances.