Angel Investing Playbook

Angel Investing Playbook

Sharing angel investing insights from a decade of investing, including 45 personal checks and investments into 6 funds.

A viral tweet by our Managing Partner, Gale Wilkinson, ignited a massive curiosity of many people on social media about what angel investing is:

This tweet led to the angel investing webinar we hosted and now, this blog post.

You see, Gale has been doing deals for 10 years, has written 45 angel checks, and has even invested into six funds. She combines that experience with a passion for helping others, especially women, invest in startups.

In this post, we'll share her wisdom, covering these topics:

  • The startup investing industry
  • How to get started as an angel investor
  • Portfolio theory and determining how much to invest
  • The types of potential returns from angel investing
  • 5 angel investing mistakes to avoid
  • How to track your angel investments

And, if you want to watch the Angel Investing Playbook webinar that Gale put on, we have that below for you as well:

Defining Angel Investing

Before we take a deep dive into what ‘Angel Investing’ is, we first define 5 concepts that will be helpful to learn the topic.

  • Private equity - an alternative asset class that includes any investment outside of the public market
  • Venture Capital - institutional money invested in a business with substantial risk; the earliest stage of private equity
  • Angel Investor - an individual investor who provides financial backing for startups (the term comes from early 1900s theater)
  • Angel Group or Syndicate - a network of angels that pool resources and capital (can be a small number to several hundred angels)
  • Angel Investing - an alternate investment class in which angels invest in early-stage ventures; the earliest stage of VC

So, an angel is just an individual investor. The term comes from the early 1900s in New York when there were Broadway shows and there were some struggling in theater productions.

These ‘angels’ would swoop in with some financial backing and save the product. And an angel group or syndicate is just a number of angels that pool their resources and capital to invest as one entity. So it can be a small number of people or several hundred angels, depending on which one you go to.

In addition to those definitions, there is actually a spectrum of early-stage investors.

Types of Early-Stage Investors

Founders raise from a number of these investors in early rounds, from family and friends all the way up to venture capitalists.

This also means that individuals can access the startup investing asset classes in a variety of ways.

The Growth of Startup Investing

Doing deals back in 2012, when Gale was getting started, the amount of capital going into startup investing was much lower. In the last 10 years, that number has grown tremendously.

As the venture capital industry has grown, so has the amount invested by angels, going from about $1B in 2012 to $4B in 2021.

Defining Accredited Investors

Typically, to invest in startups, you need to be an accredited investor, which requires you to have made over 200k of net income in the last two years (300k of income in the last two years when combined with your partner) or have a million dollars of net worth outside of your primary residence.

Today, about 11% of the households in the US are accredited, but only about 2% of the accredited population is actually investing. Take a look at these statistics:

  • 14M accredited investors in the US; 11% of households
  • 300K angels invest per year; only 2% of the accredited population
  • 22% of angels are women
  • 108M non-accredited investors in the US (some of whom could invest via crowdfunding); 89% of households

Crowdfunding and VITALIZE Angels, our community of investors at VITALIZE, don't require you to be an accredited investor to invest in startups, but more on that in a bit.

Why Do Angels Invest?

A few reasons:

Of course, there is the potential financial upside to consider when becoming an angel investor. Early-stage angel investors can end up seeing a great exit after five to ten years, way beyond the public markets.

Also, many people want to do angel investing to stay abreast of trends and learnings that are relevant to their industry at work.

Angels also love helping founders, rolling up their sleeves and providing assistance to those really early founders when needed.

Some people wanna get into VC at a later point in time and start by angel investing, which can be a great way to build a portfolio and get experience prior to the time that you're ready to start that VC role.

Finally, angels want to have fun! If you've ever been to a cocktail party and you've heard people talk about the investments that they make, it can be a really cool way to have some topics of conversation to bring forward.

How to Get Started As An Angel Investor?

Take these steps to start your angel investor journey:

  1. Calculate how much you can deploy each year into startups. This is typically somewhere between 10 to 50% of your investable cash.
  2. Decide if you want to do direct deals, invest as part of a syndicate, invest into VC funds, or some combination.
  3. Find themes, areas of focus, and/or GPs you like (If investing into funds)
  4. Read articles, books, and social media posts to learn more
  5. Join 2-3 angel groups or syndicates to begin seeing deal flow and hearing how others think about making investments
  6. Start as early as possible, through a commitment to a long-term strategy

Remember, it can take 10 to 12 years to get returns from this asset class and, by starting early, you have time to redeploy that capital again and again.

Portfolio Theory

Modern Portfolio theory (MPT) is a method for picking assets to optimize their total returns while maintaining an acceptable degree of risk. It's defined as optimizing expected risk-adjusted returns within your portfolio and is credited to Harry Markowitz.

For angel investors, a portfolio will typically have at least 15-100+ investments and is compiled over a period of three to five years to have the possibility of portfolio-style returns. Most angels do 3-10 deals per year.

Determining the Amount to Invest

How do you determine how much to invest each year? Let's break it down:

  • $150K annual salary
  • $100k taxes + expenses
  • $50k investable cash
  • $25k or 50% of investable cash to Angel deals / VC funds

You might say, “I don't really want to get into real estate or anything else, so I'm going to put 50% of my investable cash into angel deals and VC funds. So this will be 25,000.” Whatever your math looks like, you're really trying to get this end dollar amount that you feel comfortable lighting on fire, as this is an asset class where many investments will go to zero.

Again, you don't want to do any angel investing with money that you need in your three to six-month cash-saving buffer. You don't want to invest the money that you need for living expenses. It should be money you can afford to lose, money that you don't necessarily need to survive.

Here's a chart breaking down how you could deploy your capital each year;

Choosing Areas to Invest In

These are a few options that you might be interested in as an angel investor:

  • Industry themes: healthcare, fintech, future of work, consumer products, consumer tech, crypto/web3, enterprise saas, etc
  • Others: geography, stage, underrepresented founders, return profile, source, etc
  • GPs: Who do you like? Who do you believe in? Who is raising a fund size that could be a fit for your approach? Where can you get allocation?

After figuring out what your interests are, the last steps will be:

Learn, Join, and START!

You can start learning through articles, books, and social media. Then, join 2-3 angel groups to get deal flow. The most crucial thing? Start NOW!

What Does Success Look Like as an Angel Investor?

80% of the returns come from 20% of deals. Out of your 25 companies, an estimated 5 should drive the majority of your returns while most others will go to zero and a few will generate small wins.

This return dynamic underscores the importance of a 25+ portfolio or investing in multiple venture funds.

Diving deeper, let's take a look at the potential returns of angel investing to the stock market:

Angel Investing Mistakes

Mistake #1: You don’t love the deal but invest anyway

Angels are often looking to invest with the herd. Regardless of who else is investing, it should fit your personal thesis (stage, sector, price, etc.)

Remember, you’ll say no way more often than you’ll say yes (most VCs invest in <1% of deals they see)

Mistake #2: Investing with cap table issues

Angels typically invest at pre-seed or seed, so founders should still own ~80% and ~60% of the business after each of these rounds. Make sure there isn’t more than 5% of “dead equity” on the cap table. If a founder has already done a significant pivot prior to the seed round, early investors on the cap table can create too much drag.

The Cap table is effectively just a mathematical representation of ownership in the company. If too much of the ownership of the company is in the wrong hands at the early stage, this creates financing risk down the road.

You should really want to understand if it's a good investment opportunity because what's likely to happen is that investment dollars have come in to fund a business that has fundamentally changed big time and once you sell a decent amount of equity and if you're not building on what was already done, you're effectively changing the business. Sometimes it does not make sense to go forward with that investment

Mistake #3: Investing when valuation is too high

Founders should typically sell 15 to 25% of the company at the pre-seed and seed stages.

If this math doesn’t work, it’s likely they aren’t raising enough, and/or the valuation is too high. Either of these issues can make it difficult for a founder to raise their next round of capital, which introduces additional risk.

Mistake #4:  Investing in a founder who burns cash too quickly

The best investments are made with founders who can grow revenue quickly in a capital-efficient manner.

Look for right-sized teams, reasonable salaries, and an expected runway of 18+ months. Think critically before investing in companies that want to accelerate too quickly before they achieve PMF.

Mistake #5: You expect to be involved with the business

Angels are typically hands-off unless the founder asks for specific help. Introductions to customers are the number one way that angels can add real value.

Do NOT call the founder with questions.

Do NOT expect special information rights.

Do NOT get in the way.

How to Track Your Angel Investments?

Gale uses a Google Sheet to track her investments, segmenting her angel deals by a variety of factors and then tracking their performance in aggregate:


Angel investing can be a lot of fun and you're certain to learn a lot in the process.

The problem?

It's typically only available to accredited investors.

That's why we started VITALIZE Angels, a community of 425+ investors, led by our venture capital firm, which allows anyone to become an angel investor.

Interested? Learn more below:


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Written by

Gale Wilkinson