AI Investor Reveals 2 Red Flags That Kill Startup Deals | ElevenLabs

Ever wonder what separates the startups that become billion-dollar success stories from those that crash and burn before they even get off the ground? According to one angel investor who backed AI sensation ElevenLabs when it was just an idea, there are two instant red flags that will make him walk away from a deal no matter how promising it looks on paper.

Meet Carles Reina, the sharp-eyed investor who saw something special in ElevenLabs back in 2022. His early bet paid off spectacularly. The AI voice startup recently hit a valuation of $6.6 billion, and employees are now selling shares at that astronomical price point. 

Today, Reina serves as the Vice President of Revenue at ElevenLabs and has made over 74 angel investments, including companies like Revolut, Volumetric, and Elroy Air.

So what made him say yes to ElevenLabs after just 30 minutes? And more importantly, what makes him immediately say no to other startups? Let’s dive into the wisdom that could save both investors and founders millions of dollars in heartache.

Red Flag #1: Founders Who Can’t Build Their Own Product

Reina’s first deal-breaker is simple but brutal: if the founder can’t actually build what they’re pitching, they’re out.

“If any founders are not technical, like literally cannot build products, is not a researcher or something like that, I just don’t see the value in that because they’re not going to be able to move as quickly,” Reina explained.

In today’s fast-moving startup world, technical founders have a massive advantage. They can pivot faster, troubleshoot problems in real-time and adapt before competitors even notice something’s changed. It’s one thing to have a brilliant idea sketched on a napkin. It’s entirely another thing to actually build it, debug it, and scale it.

Think about it: when a technical founder encounters a problem at 11 PM on a Saturday, they can roll up their sleeves and fix it themselves. A non-technical founder? They’re waiting until Monday morning to brief a development team, losing precious time in the process.

This was exactly what impressed Reina about ElevenLabs co-founder Mati Staniszewski. The mathematician with a first-class degree from Imperial College London wasn’t just talking about problems; he was already thinking through the entire ecosystem before having a product or talking to potential customers. That technical depth and forward-thinking approach made Reina commit to investing within 30 minutes of their first conversation.

But Wait, What About Marketing?

Now, Reina isn’t saying technical skills are everything. He’s been quick to point out that the opposite extreme is equally dangerous. The world is full of companies that built “crazy good products” but completely failed on the marketing and sales side.

The sweet spot? A founding team with both technical depth and business savvy. Both are needed for success. One without the other is like having a Ferrari with no gas, impressive to look at, but not going anywhere.

Red Flag #2: Diving Into Overhyped, Overcrowded Markets

When too many venture capitalists chase the same hot idea, several bad things happen. First, valuations shoot through the roof based on hype rather than reality. Second, the market gets so crowded that even great products struggle to break through the noise. 

Third, investors end up in bidding wars, competing to offer better terms, which creates unrealistic expectations for everyone involved.

“If there is a lot of venture capitalists looking at that market, because it is sexy, I’m just not interested because then valuations skyrocket and you end up going into a pricing war where everyone’s trying to give them term sheets,” Reina said.

This creates a lose-lose cycle. Startups scramble to justify inflated valuations that have nothing to do with their actual progress or potential. Meanwhile, investors are left holding the bag when reality finally catches up with the hype.

Reina’s strategy? Look for underserved markets with real problems that aren’t getting enough attention. When he first invested in ElevenLabs in 2022, nobody was excited about voice AI. The market was quiet, which meant reasonable valuations and room to grow without fighting through an army of competitors.

What Investors Actually Want to See

While we’re talking about what scares investors away, let’s flip the script and talk about what gets them excited. Based on Reina’s philosophy and broader industry insights, here are the green flags that make investors lean in:

Technical Founders Who Understand Their Product Inside and Out: They should be able to explain not just what their product does, but how it works, why it’s different, and where it’s going. When they talk about their product, they should light up explaining the details, not just throw around buzzwords and sales jargon.

Choosing Underserved Markets with Real Pain Points: Smart founders don’t chase trends. They identify genuine problems that need solving in markets that aren’t already saturated with competitors.

Building Balanced Teams: The best startups have founding teams where everyone brings complementary skills to the table. A great technical founder paired with a great business mind is a powerful combination.

Showing Real Traction: Early users, working prototypes, growing revenue, these aren’t just nice-to-haves. They’re proof that the market actually wants what you’re building.

Having a Clear, Focused Go-to-Market Plan: If founders can articulate exactly how and when they’ll reach key milestones, they’re not just pitching a dream. They’re sharing a roadmap, which makes it easier for investors to see where their money is going and how it’ll grow.

How to Become Investor-Friendly

If you’re a founder reading this, you might be thinking, “Great, so I need to be a technical genius and a marketing wizard while also finding an untapped market that’s somehow big enough to be worth pursuing. Easy!”

Here’s the good news: you don’t need to be perfect. Investors don’t expect perfection. What they want to see is substance, self-awareness, and the ability to execute.

Develop Technical Literacy: Even if you’re not the one writing every line of code, you need to understand your product deeply. Be able to explain how it works and why your technical approach is superior.

Have the Right Mindset: Successful founders have passion, motivation, and the confidence to do things in new ways. They’re also realistic about challenges and honest about what they don’t know yet.

Know Your Tech, Customer, and Market: You should be able to speak intelligently about all three. Who’s your customer? What problem are you solving for them? Who else is trying to solve it? What makes your approach better?

Bring Proof of Execution: Don’t just talk about what you’re going to do. Show prototypes, share early user data, and demonstrate traction. And whatever you do, don’t inflate your numbers. Investors will find out, and lying is relationship poison.

Be Transparent: If you have legal hurdles, compliance challenges, or other problems, be upfront about them. Investors can work with honest challenges. What scares them off is feeling like you’re hiding skeletons in the closet.

42% of startups fail 

The startup failure rate is brutal 90% of startups don’t make it. Investors see hundreds or thousands of pitches, and they’ve developed pattern recognition for what works and what doesn’t.

When an investor spots these red flags, it’s not just about being picky. It’s about recognizing patterns that historically lead to failure. According to research, 42% of startups fail because there’s no market need, while 34% fail due to poor product-market fit. These are exactly the problems that Reina’s red flags help identify early.

Other common red flags that investors watch for include:

• Lying or exaggerating: Especially about things that are easily verifiable, like term sheets from other investors or the state of your product
• Slow progress: If you’re not showing meaningful growth across multiple metrics, that’s a warning sign
• Poor financial management: Burning through cash without a clear path to profitability
• Team conflicts: Unresolved disputes between co-founders can sink even the best ideas
• Lack of market validation: If you can’t prove that customers actually want what you’re building, you’re gambling
• Legal and compliance issues: Unresolved legal problems make investors nervous

The Investment Landscape in 2024-2025

The timing of Reina’s insights is particularly relevant. Defense tech startups raised nearly $3 billion through mid-November 2024 in 85 funding rounds, showing robust investor appetite for innovative technology companies. However, this doesn’t mean investors are writing checks to everyone with an AI pitch deck.

Major venture capital firms like Andreessen Horowitz and Alumni Ventures are being selective about where they put their money. They’re looking for the signal in the noise, the startups that have both the technical chops and the market insight to actually succeed.

Reina recently launched his own fund, Baobab Ventures, with $15 million to back pre-seed startups in AI, robotics, and defense. The fund focuses on very early-stage companies with global ambitions, but only those that pass his strict criteria.