I get this question all the time—from friends, clients, even fellow investors: “My buddy is raising money for their startup… should I invest?”
The truth? Sometimes it’s a great opportunity. Other times, it’s a fast track to awkward dinner parties. So let’s break it down.
Start with Your Allocation Game Plan
Assuming you’ve already handled the basics—your core living expenses, an emergency fund, and some long-term investments—you might find yourself with some capital to put to work more aggressively.
For most people not running a venture capital firm for a living, a good rule of thumb is to allocate 5-15% of your total investable net worth to higher-risk, startups like venture capital (this percentage can vary widely depending on your personal circumstances, so we recommend consulting with an advisor first).
So if your personal balance sheet says you’re worth $1 million and the essentials are covered, it’s reasonable to carve out up to $100K toward this asset class. But here’s the key: that should ideally be spread across multiple startup (or venture fund) bets—not just one.
Why One-Off Angel Bets Are Risky
Unlike stocks or real estate, early-stage startups are incredibly binary: most go to zero. A few, if you're lucky, can return 10x or more. Venture capitalists plan for this by investing in portfolios of 20, 30, sometimes 50+ companies.
But most individuals who angel invest don’t build that same level of diversification. Instead, they go all-in on one company—often a friend’s. That’s when risk gets personal.
So ask yourself: Would I be okay losing this entire investment and still showing up to the wedding or dinner party with a smile?
If the answer is no, maybe take a step back.
If You Do Decide to Invest…
Supporting a friend can be rewarding—but it’s still a financial decision. You owe it to yourself (and your friend!) to ask the right questions. Here are a few I always like to ask before wiring a dollar:
- What pain point are you solving? Is it urgent, expensive, or frequent?
- Who is your target customer? And how well do you know them?
- How much customer discovery have you done? Are you solving a real problem or a hypothetical one?
- Do you have users or paying customers yet? Or at least pilots, POCs, or design partners?
- Who’s on your team? Do they complement each other well? Is there domain expertise?
- Is this a 10-year commitment for the founder? Startups are grinds, not sprints.
- What happens if you run out of money? Is there a Plan B?
- What are the deal terms? What’s the valuation? Is it debt or equity? SAFE, convertible note, priced round?
- Why now? Why is this the right moment for this product or idea?
- What’s hard about what you’re building? And why are you the team to solve it?
The Bottom Line
Investing in a friend’s startup can be a powerful way to support their dream—and maybe even earn a great return. But treat it like any other investment decision: with clear eyes, sound judgment, and a healthy respect for risk.
Because even when the founder is someone you care about, the capital you're deploying should work for you, too.
If you’re ever unsure how it fits into your portfolio—or want a second opinion—we're always happy to talk it through.