Here’s how a typical angel investor loses $250,000:

• Start with $250,000 bankroll. 
• Gives $100k to founder. 
• “We’re launching soon!” 
• A year later, still not launched.
• “We need more money.” 
• Gives another $100,000 to founder.
• Six months later, product still not launched.
• “We’ll be ready to launch any minute! We just need a little more money.”
• Angel is afraid of losing his $200,000 investment.
• Gives founder the last $50,000.
• Company goes bust.
• $250,000 vaporized.

This is what happens for most angels. They only invest in one company. The founders are not technical, and the product never launches.

Their money goes up in smoke. 

Here’s how we can do better… 

Focus on Launched Products

I never invest in a software product that’s pre-launch. 

Especially with vibe coding, anyone can launch a product. If they haven’t done so, this tells me everything I need to know about them. They are not motivated or skilled. 

At least 90% of startups will never launch a product. If I simply remove those startups from consideration, I take 90% of the potential zeros out of my portfolio. 

Invest in Builder Founders

Why don’t products launch? Most of the time, it’s because the founders don’t have the necessary skills to build a product.

The rule that YC uses is to back teams of two to four founders, at least half of them technical. That’s as good a rule as any. 

Every day I see early-stage startups with a dozen people on the team. Few, if any, are builders. What the heck do these people do?

Focus on people who can actually build software. It’s awfully hard to have a pizzeria if nobody knows how to make pizza. 

Spread Your Bets

We’ve eliminated the non-builders that are never going to launch a product. But even for builder founders that manage to launch and get some customers, the startup game is brutally difficult.

So we need to do the opposite of the typical angel — we need to spread our bets.

Take that $250,000 bankroll. The better way to divide that is 50 bets of $5,000 each. 

If I make between 30 and 50 investments, I should be able to hit at least one unicorn. But if I only make one investment, my odds of hitting a unicorn are practically zero.

In our business, returns come from a handful of companies. You have to hit a unicorn in order to get a good return.

Diversification gives us an opportunity to hit something big.

Wrap-Up

If you’re thinking about getting into angel investing, be aware that you could lose every cent.

You worked hard for this money. Don’t hand it to just anybody. 

Focus on builder founders with launched products. Spread your bets widely.

If you do that, you have a chance to beat the odds and nail a killer investment.

More on tech:

Your Deck Probably Sucks. Here’s How to Fix It.

Why Short Decks Raise Millions

How First-Time Founders Can Master Fundraising

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