Half of angel investors have rejected a startup for “AI-washing”
More than half of angel investors have walked away from a startup because the AI looked bolted on for hype. That is the headline finding from the annual global investor survey by Angel Investment Network (AIN), the world’s largest online angel investment network.
Of those who answered, 54% said they had rejected a deal as “AI-washed”, rising to 67% in the UK against 49% elsewhere. Hype has given way to judgement with angels better able to spot whether it is integral to a product or just spin.
Two thirds now use AI tools themselves to source deals and run diligence, adopting the technology while getting quicker at seeing through the claims made for it. Among the angels who named a specific tool, 62% cited Claude and 41% ChatGPT, with Gemini, Perplexity, Grok and Copilot also mentioned.
Views split on AI valuations
Meanwhile, views are split on AI valuations. 41% of angels believe AI valuations are ‘frothy but justified, and 36% predict a bubble that will pop, and a meagre 3% think the sector is fairly priced.
Looking ahead to the next 12 months, AI ranks third among investment priorities (38%), behind HealthTech (45%) and climate and energy (39%). However, despite the enormous interest in AI, 44% of angel investors claim not to be investing in the sector at all.
Geopolitics is redirecting money. Instability has made 53% of angels more cautious over the past six months, while half report greater interest in energy and resilience startups and 31% in defence and dual-use.
The two-minute test
For founders, the margin for error in the present climate is narrowing. Almost half of angels (47%) reject between half and three quarters of pitches within the first two minutes. The fastest routes rejection are a founder who cannot explain the problem clearly (23%), no evidence of demand (23%) and evasive or defensive answers (19%). Buzzwords and AI-washing come next, named by 14% of angels as their single biggest reason to reject a pitch on the spot. In the UK that rises to 25%, second only to a weak problem statement.
Two thirds of angels (67%) say they judge founders on how they handle tough questions and pushback, more than any other part of their assessment. Asked what separates the founders who go on to succeed, 62% named honesty about problems before they become fatal.
Honesty matters more when money is harder to come by. Over the next 12 months, 34% of angels expect to make fewer investments against 25% expecting to make more, while 59% say valuations are still too high. 19% are optimistic about exits and IPOs over the next 12 months, against 31% who are pessimistic. Half chose the midpoint.
UK angels are the harder audience
AIN ran separate surveys in the UK and the rest of the world. British angels are the more wary of the two, and the more sophisticated users of AI themselves.
They are more likely to have rejected an AI-washed deal (67% against 49%) and far more likely to name AI-washing as their biggest instant no (25% against 9%). They are tougher on price (75% say valuations are still too high) and faster to decide, with 60% rejecting half to three quarters of pitches inside two minutes. They also use AI more themselves: 40% run AI tools regularly for sourcing and diligence, twice the international rate.
Mike Lebus, founder of Angel Investment Network, said “AI is having a dramatic impact on the startup ecosystem, from the types of businesses coming to market, to how businesses are growing, to how investors assess their dealflow. The trick is seeing the wood from the trees: The brilliant AI solution solving a previously intractable real world problem, from one adding it as a wrapper. Angels are quickly spotting the difference, and this can be fatal for a startup’s fundraising hopes if they choose to add misleading buzzwords to their pitch.”
He added: “As the survey also highlights, conditions are not easy. Valuations are still stretched, exits are slow and angels are more selective about where the money goes. That makes the fundamentals matter more than ever. Know your numbers, show real evidence that people want what you are building, and be straight about what is not working yet.”
Over the coming months AIN will release further findings from the survey, including what angels look for in founders and which sectors and gaining investor interest.