The bar for investing in your startup is much higher than it used to be

Nearly every startup founder starts the conversation by asking me, “Are you still investing?”

As if that were a simple yes or no question.

On LinkedIn, many engagement farmers talk about finding investors writing checks instead of ones that aren’t (as if we somehow enjoyed listening to pitches all day for no other purpose than being entertained by your incredible presentation skills.)

Am I still investing? Yes, but…the bar is much higher now than it used to be to get me to write a check.

I’ve been an angel investor since 2009. During that time, I’ve made 69 investments in 50 different startups for a total of $1.5M. Plus another 100 startups through 7 group funds in which we jointly invest in startups.

In the heady days of 2022, I made an effort to invest in at least one startup each month. I didn’t quite meet that goal, but ended up investing in 9 startups that year.

Since then, I’ve made 4 investments in 2023, 8 in 2024, and 4 last year (not counting the group investments.) A pretty healthy clip of investing, especially for an individual doing this in my spare time.

This year: none so far.

The problem: I’ve had around $250K of returns from successful investments. And around $300K of write-offs from failed investments.

I’m about $50K in the hole. That’s not the problem. That’s expected. That’s the J-curve — failures come quickly, small successes take longer, big successes take 10–15 years to mature.

The problem is that I’m sitting on close to $1M in unexited startup investments dating all the way back to 2011. Some have increased in value, most have gone sideways, a few are dead except for the shutdown.

Unlike public stocks, or real estate, or even artwork, I can’t sell them and invest in something else. I can’t buy a car with those investments; I can’t remodel my house. All I can do is wait. Not for another investment round, not for a milestone of success, but for an exit.

And unfortunately, over the past half decade, exits have been rare. IPOs haven’t happened. Big companies stopped acquiring startups. The mythical secondary market has remained a myth.

At the same time, the goalposts for funding rounds have moved and not for the better. Startups used to be able to land VC investment once they reached $1M ARR. Now they need $4M. Everyone except the hot hot hot AI startups are struggling to find funding.

Bleeding cash and unable to find VC funding, founders have gone back to existing investors hat in hand. “Bridge rounds” and “extension rounds” have been forced on existing investors with pay-to-play provisions (invest pro-rata in this round or have your existing investment wiped out) or recaps (previous stock is diluted to little value with a big new raise at a low valuation). Invest again in a failing startup or get eliminated.

Of my investments the past 2 years, many were made under duress. Instead of harvesting investments to replenish my retirements savings and while investing in fresh, exciting startups, I’m having to provide an infusion of cash from the overstretched bank account to keep the previous investments on life support. Ah, the pleasures of angel investing.

That’s the two-fold problem: No returns coming in. Too much investment going out to support the existing portfolio. That leaves me in a double-pinch when considering investing in your startup. Make that a triple-pinch because my wife wants a new car and she’s wondering why the bank account is empty.

Okay, yes, 1st world problem. I’m incredibly fortunate to be able to invest in startups instead of worrying about how to pay for groceries. So don’t get me wrong, I’m not complaining. I’m trying to set the table for the conclusion: here’s why I’m unlikely to invest in your startup.

Why I’m Not Investing in Your Startup

You have a great pitch. It looks like a great product. I believe in you, yes I do. I’d really truly like to see you succeed.

But let’s be realistic. A pre-seed startup has a 1 in 10 chance of success. At best. (1 in 25 is probably closer to the truth.) And that’s the cream of the crop, the top 1% that I actually invest in.

If you had come to me 3 years ago with the same pitch, hell yes I would’ve invested. And so would’ve 50 of my closest angel investor friends. People would’ve been begging you to take their money. Your round would’ve been closed within days.

Now…not so much. Sorry, man, we’re tapped out.

Is that a hard no? No. But the bar is a lot higher than it used to be. You can’t be offering just a good opportunity. It can’t be another 1 out of 10 chance of success.

This has to be the one investment I can’t miss. The investment that’s going to make up for all my other failures. The opportunity I have complete and total confidence will be the one to succeed.

In other words, I am still investing. But the bar is high. I’ll probably do 1 or 2 investments this year if my wife doesn’t lock me out of the checking account first.

Is it Just Me?

I wish I could tell you the bottleneck was just me. But sorry to break it to you, pal, but I’m just the face of a trend.

All the other angel investors I know (and I know a lot) are in the same pickle. Tapped out. Our limited resources going into bailing out the ships where we previously sunk our money.

Angel groups are shrinking. Of the remaining members, they’re writing fewer checks. Angel group member funds are getting smaller year by year. Angel investors are being more parsimonious with our checkbooks.

And the VCs? Yes, they’re making billion dollars investments in GenAI and datacenters. I don’t know many writing $500K checks any longer to pre-seed startups outside the AI sector.

Is the Door Opening?

In the middle of this bleak winter landscape, there are hints of the coming of spring. In the distance, I hear the chirping of an IPO market about to crack open. I see fresh shoots of corporate acquisitions poking through the snow.

We’ve had false springs before, first with the ARM IPO in late 2023 that was supposed to be the beginning of a flood of tech IPOs. Unfortunately, investors realized ARM was a mature chip design company with $4B in revenues, not a fresh-faced startup.

Klarna’s IPO two years later was the next big hope. After going public at $40, the share price has shrunk to $14 now. CoreWeave, though, which went public around the same time, has done well, tripling in stock price.

It feels like this time is different, that startups are ready to go public and public investors are ready to pounce.

Meanwhile, the mismatch between VC valuations and what big company acquirers are willing to pay is continuing to keep deals off the table. But every day I hear rumors of deals in the works. Big companies are at least kicking the tires. Hopefully a few deals will materialize, even if the valuations remain grounded.

Of course I want that 100x return that will redeem all the time and effort I put into startup investing. But at this point I’d be thrilled with a few 2x and 3x returns, even some 1x liquidation preferences.

Because that would refill the checking account to invest in fresh startups. And buy my wife a new car.