UK angels reject AI-washed startups amid rising scepticism

Angel Investment Network found that 54% of angel investors have rejected a startup because they believed its use of artificial intelligence was overstated. The response was sharper in the UK, where 67% said they had turned down such deals.

The network surveyed 64 investors across its UK and international membership. It found rising scepticism over AI claims even as many angels use AI tools in their own work. Two-thirds said they now use AI for sourcing deals and carrying out due diligence, with Claude and ChatGPT the most commonly named tools among those who specified a product.

The findings point to a more cautious mood among early-stage investors. More than half (53%) said geopolitical instability had made them more cautious over the past six months, while 59% said startup valuations remained too high. In the UK, that figure rose to 75%.

Opinion on AI pricing was divided. Some 41% said valuations in the sector were "frothy but justified", while 36% expected an AI bubble to burst. Only 3% said AI was fairly priced.

That caution has not removed AI from investors' watchlists, but it has not made it the leading area either. HealthTech ranked first among sector interests at 45%, followed by climate and energy at 39%, with AI third at 38%. At the same time, 44% of respondents said they were not investing in AI at all.

Pitch pressure

The survey also suggests founders face faster judgments when meeting investors. Almost half of respondents (47%) said they reject between half and three-quarters of pitches within the first two minutes. In the UK, 60% said they made that level of early rejection.

The most common reasons for immediate rejection were a founder's inability to explain the problem clearly and a lack of evidence of demand, each cited by 23% of respondents as their single biggest reason. Evasive or defensive answers followed at 19%.

Buzzwords and AI-related exaggeration were another trigger. Fourteen per cent of all respondents named AI-washing as their biggest reason to reject a pitch on the spot, rising to 25% among UK investors, where it ranked second only to a weak problem statement.

Investors also weighted how founders responded under pressure. Two-thirds (67%) said they judged founders most on how they handled tough questions and pushback, while 62% said honesty about problems most clearly separated successful founders from the rest.

Investment outlook

The figures suggest a restrained outlook for the coming year. Around 34% said they expected to make fewer investments over the next 12 months, compared with 25% who expected to make more. Sentiment on exits was also subdued: 19% said they were optimistic about exits and initial public offerings, 31% were pessimistic, and half chose the midpoint.

Geopolitical instability also appears to be shifting where investors are looking. Half of respondents said they had increased interest in energy and resilience startups, while 31% pointed to defence and dual-use businesses.

British investors stood out as both more sceptical and more active users of AI in their own processes. The survey found that 40% of UK angels regularly used AI tools for sourcing and diligence, double the international rate.

"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," said Mike Lebus, Founder of Angel Investment Network.

He added that conditions remained difficult for founders seeking capital. "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," Lebus said.