5 Things to Do When Your Angel Investment Fails

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As an angel investor, you know that failure is part of the game. No matter how much diligence, hope, and strategy you pour into selecting startups, the inevitable will happen: one of your investments won’t make it. The email or call will come or news alert :), and the founder will let you know that they can no longer continue. It’s not an easy moment—for you, and especially not for them.

Step 1: Breathe and Show Grace

Before anything else, take a deep breath. Remember: most startups fail. This isn’t a reflection of your investing acumen—it’s the nature of the ecosystem.

Instead of reacting with frustration or disappointment, extend empathy and support to the founder. Keep in mind that founders often take on risks that far outweigh what any investor shoulders. Many go without salaries, mortgage their homes, work 80-hour weeks, and pour their hearts into building something from nothing.

Even if you're disappointed, a kind word can mean everything to someone navigating the emotional and financial fallout of their dream’s collapse. A quick note of encouragement like, “I know how hard you worked on this, and I’m proud of the effort you gave. Let me know if there’s anything I can do to help as you navigate what’s next,” goes a long way.

Step 2: Reflect on the Scenarios

Over my journey as an angel investor, I’ve had investments fail for a variety of reasons. While the details differ, the lessons often rhyme. Here are some examples of it happened to me;

1. The Debt Acquisition This was a promising beauty startup that started strong but took on debt to fund growth. Unfortunately, the revenues didn’t scale fast enough, and the company eventually could not sustain growth in a crowded market. An outside buyer bought the IP, but left all equity stakeholders dry.  
2. The Crash and Burn A fintech platform in my portfolio scaled too quickly without solid product-market fit. It raised a significant round but burned through cash at a pace its metrics couldn’t justify. When additional funding didn’t materialize, the doors closed abruptly.  
3. The Ghosting Perhaps the most frustrating scenario: a founder stops communicating altogether. They ghost their investors, leaving you in the dark. While this is rare, it underscores the importance of backing founders with integrity and prioritizing ongoing communication.  

Each failure carries lessons, whether it’s about market timing, capital efficiency, founder dynamics, or product strategy.

Step 3: Handle the Mechanics

When an investment fails, there are practical steps you’ll need to address:

• Dissolve the SPV (if applicable): If you made your investment through a Special Purpose Vehicle (SPV), you’ll need to dissolve the LLC. This typically incurs fees, so contact your syndicate lead or service provider to navigate the process.  
• Tax Considerations: In many states, you may be able to write off the investment as a loss. Consult with your CPA to understand your specific tax implications.  
• Keep Records: Document the loss for future reference. Good record-keeping will also help you identify patterns in your portfolio over time.  

Step 4: Reflect and Recalibrate If this is your first loss, give yourself permission to grieve it. Failure is hard, no matter how seasoned you are. But don’t dwell for too long—this is your opportunity to reflect and recalibrate.

Ask yourself:

• Did I over-index on founder charisma and underweight the market opportunity?
• Was I too optimistic about the startup’s financials or competitive position?
• How can I strengthen my due diligence process for future investments?

This is also a great time to revisit your investment thesis and refine your approach.

Step 5: Get Back in the Game The best investors are not defined by their failures but by how they respond to them. Sharpen your saw, get back on your feet, and keep building your portfolio. Angel investing is a long game. One loss doesn’t erase the opportunity to make meaningful, impactful investments in the future.

Closing Thought: Startups are inherently risky, but they also represent boundless potential for innovation and change. By learning from losses, you not only grow as an investor but also become better equipped to support the founders who trust you to be part of their journey. If you’ve experienced a failed investment, what did you learn? I’d love to hear your thoughts in the comments.

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Bell

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