Angel investors say startup valuations are still too high as geopolitics redirects money

More than half of angel investors (59%) say startup valuations are still too high. That is a key finding from the annual global investor survey by Angel Investment Network (AIN), the world's leading online platform for early-stage funding.

Over the next 12 months, 34% of angels expect to make fewer investments against 25% expecting to make more. Exit sentiment is weak, with 19% optimistic about exits and IPOs over the next 12 months, against 31% who are pessimistic. Half chose the midpoint.

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.

AI valuations

Some 44% of angels are putting no money into AI at all, with the sector ranking third over the next 12 months (38%), behind HealthTech (45%) and climate and energy (39%).

Views are split on AI valuations. More angels believe AI valuations are 'frothy but justified' (41%) than predict a bubble that will pop (36%), though only three per cent think the sector is fairly priced.

Of those who answered, 54% said they had rejected a deal as "AI-washed", where the AI looked bolted on for hype, rising to 67% in the UK against 49% elsewhere. Hype has given way to judgement, with angels better able to spot whether AI 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.

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 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 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 also use AI more themselves: 40% run AI tools regularly for sourcing and diligence, twice the international rate.

The two-minute test

For founders, the margin for error is narrowing. Almost half of angels (47%) reject between half and three quarters of pitches within the first two minutes. The fastest routes to a no 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 are now the single biggest instant rejection trigger for 14% of angels.

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.

Mike Lebus, founder of Angel Investment Network, said: "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."

He added: "AI is having a dramatic impact on the startup ecosystem, from the businesses coming to market 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, often using AI tools to aid the process."

Over the coming months AIN will release further findings from the survey, including what angels look for in founders and which sectors are gaining investor interest.