If I can’t clearly articulate why a company will fail, I think it’s investable.

I have used this line a lot, and it tends to land in one of two ways. Some people nod immediately because it sounds right to them, even if they couldn’t have said it themselves. Most people stop and look puzzled. They were expecting the opposite test. Surely the question is whether I can articulate why a company will succeed? That is how investing usually gets described. You build conviction, you see the upside, and you commit.

But angel investing doesn’t work like that. And it took me a while to work out why.

A different game

When I started angel investing in 2013, I didn’t arrive empty-handed. I had spent the late 1980s and early 1990s as a fund manager at BT, and then ran Citigroup’s equity capital markets business in Australia. That gave me a particular operating system: the institutional investor’s lens. This approach was trained on the daily firehose of broker calls, research notes, and pattern matching that The Walking Investor describes. I knew how to read a market and how to build an investment thesis with a logical foundation I could state in a sentence.

But the lens transferred imperfectly. Angel investing has no liquidity, no public comparables, no analyst coverage, and a tiny information set compared to listed equities. More importantly, it has a fundamentally different probability structure, and that is where most new angels get into trouble.

Listed equity is essentially a coin toss with a small edge. A reasonable stock picker gets to 52/48. The best fund managers in the world — and I have known a few — get to 55/45. Picking winners in that world is borderline coherent. You can move the needle with research and discipline and the base rate gives you room to work.

Angel investing is 10/90. Roughly one in ten investments works. As I wrote in Roll the Die, the only sane response to that base rate at the portfolio level is volume, i.e. play 25 to 40 times. At the individual-deal level, the same base rate has a different implication: you cannot pick winners. A 10-to-1 racehorse will still lose most of the time, no matter how much you like its form. The concept of “picking winners” is mathematically incoherent at a 10/90 base rate.

So, if you can’t pick winners, what is the test?

The test is the negative one. You cannot demonstrate that this deal will work. But you can sometimes demonstrate that it won’t. The deals worth backing are the ones where you have looked for a reason to pass and you can’t find one; at least, not one you can clearly state.

This is a Popperian move, if you want to dress it up. It’s investability defined by the absence of an articulable failure thesis rather than the presence of an articulable success thesis. It is also just the honest description of what your brain is really doing on a pitch night.

How the model got built

I didn’t have this framework in 2013. It came together over years, in three stages.

The first stage was just doing the deals. Brisbane Angels gave me the volume, mass exposure to pitches in the room, screening committees, due diligence, company updates. Pattern matching kicks in with reps. After a few dozen deals, you start to recognise the shapes — the founders who are going to make it work, the unit economics that don’t add up, the markets that are smaller than they look, the competition that is about to get ugly. Some of this is conscious, but a lot of it isn’t.

The second stage was when I went looking for best-practice thinking. By around 2018 my own model had taken me as far as the BA experience alone could. I wanted somebody who had thought about angel investing systematically and written it down.

I found Seraf. Seraf is a portfolio management tool and educational platform co-founded by Christopher Mirabile and Ham Lord. Mirabile is Chair Emeritus of the Angel Capital Association, the leading US trade body for angel groups, and one of the most respected angel investors in the United States. He has 65-plus personal investments, a long-running role at Boston’s Launchpad Venture Group, and the Hans Severiens Award for his contribution to the advancement of angel investing. Seraf runs a content-led go-to-market. They sell software, but the moat is the educational library, including ebooks, articles, and a comprehensive resource centre called the Seraf Compass.

I consumed a lot of it. The Seraf due diligence ebook in particular gave the structural foundation for the framework I had been building through experience. It didn’t replace pattern matching, but it gave the pattern matching a scaffold to hang on.

The third stage was Brisbane Angels’ formal feedback survey, which is the local expression of the framework.

Ten questions, five options

Every deal at Brisbane Angels gets assessed against ten questions. They cover the things you would expect: problem, solution, team, market size, competitive landscape, go-to-market, deal structure, valuation, and so on. Each question is answered on a five-point scale: agree, mildly agree, unsure, mildly disagree, disagree. The external output is constructive feedback to the entrepreneur. Every pitch at Brisbane Angels gets a structured response. The internal output is a failure search.

The questions are not all created equal. There is a hierarchy, and the hierarchy matters.

Problem, solution, team, and market size are the entry-level questions. If the room doesn’t broadly agree on these, the pitch is going nowhere. You haven’t cleared the bar to be seriously considered. As I explored in Problems, Problems, Problems, the problem statement does most of the heavy lifting in a 10-minute pitch, and if the problem is fuzzy, every subsequent slide has to work twice as hard. ‘Unsure’ on the entry-level questions is usually fatal.

Competitive landscape and go-to-market are where the rubber meets the road. These are the hard questions, and they are where most live deals get decided. A founder can have a great problem, a credible solution, a strong team, and a real market, yet still trip on competition or distribution. ‘Unsure’ on these questions is where the meaningful conversation lives.

Structure and valuation are different. They are negotiable. Passing on a deal because the valuation looks high or the term sheet has a wrinkle, when the underlying business is sound, is a category error. The terms have not been finalised. New angels do this all the time. They see an asking valuation and walk, before the negotiation has even started.

The bridge

Here is the part most people miss. Virtually no early-stage pitch gets universal agreement. There is always some ‘unsure’ element. And the unsure element is usually the basis for clearly articulating why a company will fail.

So the selection decision often comes down to one or two unsure areas. Can they be resolved into agreement with another conversation, more information, a reference call? Or do they harden into a clean failure thesis: “this is why this will not work.”

This is also the most important piece of feedback I give entrepreneurs after a pitch. The ‘agrees’ and ‘mildly-agrees’ are useful colour. The ‘unsures’ are where the next conversation needs to happen. They are usually the difference between an investment and a pass.

Underwriting the uncertainty

There is a subtlety here that took me a while to settle. As an angel investor, I cannot remove the unsure. Underwriting risk is the game. Every early-stage deal has irreducible uncertainty, and if I waited for it to disappear I would never write a cheque.

What I am looking for is a path. Does the capital being raised in this round fund a credible chance of reducing or eliminating the unsure, so that at the next financing round the company can access less risk-tolerant capital at a higher valuation?

The framing I keep coming back to is: what do I need to believe? Or: what is the bet I am making? Both questions force you to name the specific uncertainty the round is designed to retire. This is not abstract judgment of the company. It is whether the round funds a real path.

ReciMe

A working example. ReciMe is a recipe app, founded in Melbourne by Christine Nguyen, Ivy Nguyen, and Will Kent.

If you ran ReciMe through a positive-test framework, it was an easy pass. Recipe apps are a commoditised category. The consumer-app graveyard is deep. There is no obvious moat. Three first-time founders. Every Australian VC I am aware of passed.

I couldn’t articulate why it would fail. The founders were obviously good, the product was simple and solved a real problem, and the unsure areas were real but not disqualifying.

Brisbane Angels backed it and it has performed spectacularly since.

The positive-test investors said no. The negative-test investors said yes. The negative test was right, at least so far.

I don’t tell this story to claim a win. I tell it because it is the framework working as advertised. Every reason to pass on ReciMe was a generic reason that applied to a thousand other consumer apps. None of them was a clearly articulated failure thesis specific to ReciMe.

What this looks like in my inbox

The practical end of the framework is the way I respond to founders who reach out to me. The volume is large enough that I have had to systematise it.

If the pitch is an angel-stage deal from an Australian founder, I respond. Two options: a request for a call, or a pass with my main concern.

I take the call when I have read the pitch and I am unsure on only one or two issues. The point of the call is to resolve those issues, at least to the level where the deal is worth introducing to the Brisbane Angels filtering engine. If they resolve, the deal moves forward. If they don’t, I know why I’m passing, and so does the founder.

When I pass, I don’t usually engage in an ongoing discussion. Sometimes I have multiple reasons and I only name one. That is not me being lazy, it is me being honest about a process where the answer is no, and dragging it out doesn’t help either side. The founder is better off hearing it cleanly and moving on.

Both responses come back to the same test. Can I articulate why this will fail? If yes — clearly, and specifically — I pass. If no, and the unsure areas are narrow enough to be worth a conversation, we talk.

That is what investability looks like when you stop trying to pick winners.

Richard Moore is co-founder of MooCoo Ventures, an angel syndicate that co-invests alongside Brisbane Angels, one of Australia’s most active angel groups. He has made over eighty personal angel investments since 2013.

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