We Need More Angel Investors
Angel investors are a critical part of building successful startup ecosystems
In May 2024, I wrote We Need More Founders. The core argument was straightforward: Founders drive economic value.
✅ They create companies.
✅ They create jobs.
✅ They create optionality in an economy that otherwise drifts toward stagnation and concentration.
That belief hasn’t changed. If anything, it’s become more obvious.
But there’s a missing piece in that story that doesn’t get nearly enough attention.
If we want more founders to succeed, we need more angel investors.
🚫 Not more conferences.
🚫 Not more ecosystem reports.
🚫 Not more think pieces about “what’s broken.”
More people writing early checks.
Founders Don’t Create Value in a Vacuum
Even in the age of AI, founders still need capital.
The tools are cheaper, it’s easier to build and experiment, and a single person can now do the work that used to require a small team.
All of that is true.
But none of it eliminates the need for initial risk capital. It just changes how that capital is used.
Before you have traction, paying customers or any institutional investor will take your call, that first capital almost always comes from angel investors.
If you believe founders drive economic value, you have to accept the next step in the chain: Founders need early capital to unlock that value.
The Flywheel that Actually Matters
Healthy startup ecosystems are not mysterious. They’re repetitive.
The flywheel looks like this:
People start companies.
Some of those companies win.
A subset of founders who win become angel investors.
Those angels fund and support the next generation.
The cycle repeats, with better odds each time.
This is not theoretical. It’s how every strong startup ecosystem compounds over time.
The reason angels matter so much is not just the money. It’s the recency of experience.
The best angels have lived through:
early hiring mistakes,
product-market fit confusion,
pricing experiments,
distribution failures,
fundraising errors,
and founder stress that doesn’t show up in decks.
That experience is most valuable at the beginning, not the Series B (although having great investors later on with Series B experience is also important!)
When that flywheel works, ecosystems build momentum.
When it doesn’t, ecosystems stall and look outward for validation.
(Note: Sometimes the people who win become VCs. That’s also a good thing, although I think it’s better if they become angels first. And VCs are, unfortunately, a real choke point, not a huge enabler in a market where they’re building relatively small portfolios and picking after there are more signals. Angels make the earliest, riskiest bets, and without that taking place, you can’t build a healthy startup ecosystem.)
Step Two is the Choke Point
Most startup journeys, regardless of geography, follow a similar arc (or at least try to):
Start the company.
Raise angel capital.
Prove traction. (Sometimes this comes before raising angel money too.)
Then worry about larger rounds.
I recognize this is a gross over-simplification of the process! But if step two fails, nothing else matters.
You can talk all you want about the lack of venture capital, growth funds, or late-stage financing. If startups can’t get off the ground with a bit of early support, they never reach the stage where those conversations are relevant.
Angel capital is what turns “an idea with ambition” into “a company with a chance.”
Without it, you don’t get enough experiments.
Without enough experiments, you don’t get enough wins.
Without wins, you don’t create new angels.
No flywheel. Just friction.
(Incidentally, venture studios can also play this role, because they’re there at the very beginning and provide capital. But venture studios often need early external capital too. Where does that come from? You guessed it: angel investors.)
Angel Investors Are Not Optional Infrastructure
This isn’t just intuition or anecdote. There’s real evidence that angel investors materially improve startup outcomes and local ecosystem health.
Research from the U.S. National Bureau of Economic Research studied startups that were just above or below angel investment thresholds and found that angel-backed companies were:
significantly more likely to survive,
more likely to hire employees,
and more likely to successfully exit the “startup phase.”
Importantly, these effects were strongest outside of major startup hubs, where angels often represent the only realistic source of early risk capital.
In other words: angel investors don’t just pick winners. They create more viable companies in the first place.
This matters at the local level. When early-stage capital is available nearby, more people are willing to try. When it isn’t, fewer companies get started, fewer founders win, and fewer future angels are created.
That’s not a funding gap problem.
It’s a compounding failure problem.
For more evidence on the topic, check out these posts:
How Angel Investors Support Early-Stage Startups (Allied VC)
The long-term impact of entrepreneurial financing on job creation based on the roles of venture capital and angel investment (ScienceDirect)
A Quick Aside on YC and Secondary Markets
Recently, Y Combinator made a change that removed Canada from the list of jurisdictions it invests in, pushing founders toward incorporating in the US if they want YC funding (which btw, they always encouraged). This sparked a lot of debate, especially in Canada. (Here’s a Betakit article for example, and an X thread from Fahd Ananta.)
Some people panicked. Others downplayed it. Some treated it as an existential signal.
It’s none of those things.
Here’s my perspective for founders from secondary markets (basically anywhere except Silicon Valley/SF and perhaps New York):
leave if you need to (or want to),
incorporate elsewhere if it helps,
stay local if it makes sense, or because you prefer to.
Optimize for winning. Or don’t. Your call. It’s your company, no one else started it. That gives you the right to decide how you want to run it, and where you want to run it. If you leave a secondary market and people bemoan your decision, tell them to f**k off and start their own companies.
But if you win, after leaving or not, just remember where you came from and return the favor to the next founder. Invest.
Why Angel Investing Matters Even More in the Age of AI
AI changes the startup equation in two important ways.
First, more people can build more things. AI lowers the friction to experiment, prototype, and ship. That should increase the number of people attempting to start companies, which is a good thing.
Second, the capital required to reach meaningful proof points is dropping for many software startups. You can now do more with fewer people and less money. That’s been happening for awhile, but it’s even clearer now (there are exceptions, of course).
Put those together and you get a simple conclusion: Angel investors are more leveraged than ever.
A relatively small amount of capital, pooled across a few angels, can give founders just enough runway to:
validate a real problem,
test distribution,
get early customers,
and earn the right to raise the next round.
AI doesn’t eliminate the need for capital. It shifts where capital has the most impact. Increasingly, that impact is at the very beginning.
How to Become an Angel (Without Cosplaying as One)
Let’s get practical.
⚠️ Calling yourself an angel investor does not make you one.
⚠️ Being in an angel group does not make you one.
⚠️ Attending pitch events does not make you one.
⚠️ Having opinions does not make you one.
💰 Writing checks does.
Basically, don’t be this guy ⬇️
This matters because in smaller markets especially, there’s a lot of “big fish, small pond” behavior. People get status from proximity to startups without actually taking risk.
That doesn’t build ecosystems.
My goal isn’t to be overly negative or pessimistic, but to focus on what matters: dollars going into early stage startups, quickly, under fair and reasonable terms, to give those startups an improved chance of succeeding. Which in turn creates more value for everyone.
1. You actually have to invest
Being an angel who helps build a community means:
committing capital,
accepting that most investments won’t work,
and understanding that doing nothing is the least helpful position.
You don’t need to spray checks everywhere.
You do need to participate.
No checks equals no flywheel.
2. Start smaller than your ego wants
New angels often oversize their first checks.
Smaller checks let you:
build a portfolio,
learn faster,
reduce emotional attachment to any single deal,
and stay in the game longer.
Angel investing is not about finding one winner (although winners are nice!) It’s about giving multiple founders a real chance.
3. Optimize for learning early
One of the biggest early returns in angel investing is not financial. It’s learning.
You learn:
how founders behave under pressure,
what real early traction looks like,
which markets surprise you,
and how often your instincts are wrong.
You also learn about what you like to invest in, and start to develop a thesis that can help you find the right founders to back.
The learning compounds quickly if you’re paying attention. The more you learn, the better you become as an angel investor, which helps you (from a financial return perspective) and the founders you support.
4. Be useful, not performative
Founders don’t need more loud advisors with hot takes.
They need:
timely introductions,
honest pattern recognition,
direct feedback without drama,
and support when things get uncomfortable.
Sometimes the most helpful thing you can do is say nothing. Sometimes it’s one intro or one message at exactly the right moment. Sometimes it’s a hug.
Angel investing is not about being visible. It’s about being useful. And, founder friendly. There’s a time to push back on founders, and express your genuine concern and frustration—you’re not there to sugarcoat. But founders go through enough crap, they don’t need more. Back them up and be there for them when things get tough. They’ll remember and appreciate it. Your reputation in the market will grow. You’ll get into more and better deals.
5. Remember why you’re doing this
Of course, returns matter. But most great angels don’t do this purely because of expected value math.
They do it because:
they enjoy supporting builders,
they want to stay close to creation,
they want to give founders a better experience than they had,
and they believe strong companies lead to strong economies.
Founders can tell the difference.
Before Highline Beta, I was an angel investor, and learned a lot. I shared those learnings a couple years ago:
Lessons Learned as an Angel Investor
·A few days ago I received distributions from an angel investment I made in February 2014. I don’t angel invest anymore because I now run Highline Beta, a venture studio and VC firm (so my investing is done through that), but I thought it would be interesting to reflect back on the experience.
A Simple, Actionable Example
Recently, I was speaking with a senior executive in a mid-sized Midwest US city. He’d had a long, successful corporate career. He was leaving to start his own consulting practice. And like many people in that position, he was eager to “help the local startup ecosystem.”
He asked the question I hear all the time: “What’s the best way for me to actually make a difference?”
My answer was simple: Become an angel investor.
Not an advisor with opinions, or a mentor who never commits. And not someone who attends events and talks about potential.
Write checks.
Even relatively small ones.
In markets like his, one or two new angels who actually invest can:
help a handful of founders get started,
create early momentum,
and start a flywheel that didn’t exist before.
In my experience when one new angel emerges, others follow. They see someone doing it, especially someone they trust, and then they want to participate. So not only does angel investing drive more quality startups in a local ecosystem, it creates more angel investors. And the flywheel strengthens.
Startup Ecosystems are Built by People Who Write Checks
If you believe founders drive economic value, then act like it.
If you believe startups matter, fund them early.
If you’ve won as a founder, pay it forward.
If you call yourself an angel, write checks (you can start at $5k!)
If you sit on the sidelines collecting status without risk, stop pretending you’re helping.
AI will increase the number of people building. That only matters if we increase the number of people funding the beginning.
Angel investing is not charity. It’s not a hobby or brand (although it can help you build your brand!). It’s infrastructure.
Angel investing is one of the few ways experienced operators and founders can directly shape the economic future of the places they live.
We don’t need more commentary. We need more angels who actually invest.
That’s how ecosystems compound. 💪