Angel investing is an exciting space. It moves quickly, connects individuals with inspiring founders, and presents an opportunity to create meaningful wealth. However, as with most things, the earliest steps are where the most important learning occurs.

Many new investors enter their initial deals with great enthusiasm, and rightly so but often make a few common mistakes along the way. This is entirely natural. What matters is how quickly one learns, remains open to feedback, and avoids repeating the same errors.

Here are five mistakes most first-time angel investors make in their early investments and some thoughts on how to steer clear of them:

1. Getting Carried Away by the Hype

This is perhaps the most common mistake. First-time angel investors are frequently drawn to “hot” sectors such as artificial intelligence, direct-to-consumer brands (D2C), deep technology (deeptech), or crypto. While these sectors may be trending, being in a popular space does not automatically make a startup a sound business.

Investors may be swayed by a polished pitch deck or a highly confident founder. While confidence can be a positive sign, it cannot replace strong business fundamentals. Before committing capital, investors should pause and ask: Is a real problem being solved? Who is the customer? Is the product or technology truly differentiated? What is the founder’s track record?

Avoid letting fear of missing out drive decisions. Trends will change, but businesses built on fundamentals and clarity will endure.

2. Overlooking Financial Basics

Another major error is neglecting to evaluate the financial foundation of the startup. It is tempting to assume that once the business scales, operational issues will resolve themselves. In reality, scaling a flawed model can worsen the underlying problems.

Angel investors do not need to create detailed financial models, but having a basic understanding of the unit economics is crucial. Key questions to consider include: How much does it cost to acquire one customer? Is there a path to profitability? What is the monthly burn rate, and how long can the company operate before needing additional funding? Is there a realistic plan to reach breakeven?

These financial markers reveal whether the company has the resilience to grow sustainably or is simply pursuing growth without a solid foundation.

3. Not Understanding the Paperwork

This is an area where many investors lose value without realising it. Terms such as dilution, employee stock option pools, liquidation preference, or valuation caps may seem technical, but they define how much an investor ultimately receives if the startup succeeds.

For instance, an investor may own two per cent of a company today, but what happens after several future rounds of funding? Will that stake be heavily diluted? If the company exits, will liquidation preferences result in later-stage investors receiving returns before others?

It is important not to sign documents blindly. If something is unclear, seek clarification or professional assistance. These legal and financial terms shape the outcome of an investor’s journey.

4. Holding on Too Long and Missing an Exit

Even experienced investors fall into this trap. A promising exit opportunity arises, perhaps a buyback or a secondary sale, but the investor chooses to wait, hoping for an even larger return. Often, this results in missed opportunities when markets shift or company momentum slows.

Knowing when to exit is just as critical as knowing when to enter. Having predefined expectations around return multiples, milestones, or timeframes can guide decision-making. Sometimes, accepting a good return is better than holding out for an ideal one that may never materialise.

5. Going Silent After Investing

Many investors contribute capital and then go silent. They may not stay in touch, offer support, or monitor the company's progress. However, funding is only one component of what startups need.

Founders often benefit from introductions, strategic advice, hiring support, or even moral encouragement. Even if an investor cannot actively assist every startup, maintaining regular communication demonstrates commitment. It also helps investors track performance and identify which companies to support further.

Staying involved does not require weekly calls. A quarterly update, a check-in message, or connecting a founder to a relevant contact can make a meaningful impact.

Final Thoughts: The First Few Deals Are the Best Teachers

Think of your first few investments as an investor’s "school fees" in the angel investing journey. These early deals offer a chance to make mistakes, learn key lessons, and begin to develop one’s investment approach.

Ultimately, angel investing is not just about finding the next unicorn. It is about supporting exceptional founders and learning to identify real value beneath the surface. The most successful investors are those who remain curious, grounded, and connected.

So if mistakes have already been made, that is fine. What matters most is the pace of learning and the wisdom applied in future decisions.

Views are personal. The author is co-founder and CEO at VG Angels