Summary: Venture capitalists are adopting fresh strategies to invest in AI startups, recognizing that traditional rules no longer apply. Rapid revenue growth, data generation, and strong competitive moats are now key factors. While some emphasize go-to-market strength, others stress the importance of solid technology. Despite high expectations for fast innovation, the AI industry remains young, offering opportunities for new leaders to emerge.
A New Investment Landscape for AI Startups
Venture capitalists agree that investing in AI startups demands a different approach compared to previous technological shifts. As Aileen Lee, founder and managing partner of Cowboy Ventures, shared onstage at TechCrunch Disrupt 2025, “It’s a funky time.” She highlighted how some AI companies can leap from zero to $100 million in revenue within a single year, signaling a significant shift in investment dynamics.
What Series A Investors Are Looking For
Lee explained that Series A investors aren’t solely chasing rapid revenue growth. Instead, they apply what she described as “an algorithm with different variables and different coefficients.” Factors such as data generation, the strength of a startup’s competitive moat, founders’ past achievements, and the technical depth of the product all play crucial roles. “Depending on what your company is, the output of the algorithmic formula is going to be different,” she said.
Jon McNeill, co-founder and CEO of startup creation firm DVx Ventures, noted that even startups growing quickly to $5 million in revenue often face challenges securing follow-on funding. “I think this game has changed, and it is changing dynamically,” he remarked. McNeill observed that Series A investors now apply rigorous standards to seed-stage startups that were previously reserved for more mature companies.
The Debate: Technology vs. Go-to-Market Strategy
McNeill pointed out that breakout companies often don’t have the best technology but excel in go-to-market strategies. “They have the best go-to market,” he said, emphasizing the importance of attracting and retaining customers.
However, Steve Jang, founder and managing partner of Kindred Ventures, disagreed with the notion that strong go-to-market alone can compensate for mediocre technology. “I don’t think it’s 100% true to say mediocre technology, great GTM wins and raises money and gets customers. I think that it’s a necessary requirement to have both,” he explained.
McNeill later clarified that while a solid product is essential, founders must develop an exceptionally strong sales and marketing strategy from the start. “Investors are getting much more sophisticated on the go-to market than they have in the past,” he added.
This discussion was echoed during the conference when Roy Lee, founder of the viral startup Cluely, cautioned that launching a product that barely works—even with massive social media buzz—may not always be the best approach.
The Pressure to Innovate Quickly
Aileen Lee also highlighted the intense pressure on AI startups to deliver product updates and new features at an unprecedented pace to stay ahead of competitors. “If you look at how much OpenAI and Anthropic are shipping, you’re going to have to figure out how to match how much you ship, how quickly and the quality of it,” she said.
Early Days and Opportunities in AI
Despite the high expectations for rapid growth and innovation, panelists agreed that the AI industry is still in its early stages. As Jang put it, “There are no clear, outright winners, even in LLMs. There are competitors nipping at their heels.” This means startups still have opportunities to challenge established leaders, whether they are long-standing companies or fast-moving newcomers.
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