vcs abandon old rules for a ‘funky time’ of investing in ai startups

The Evolving Investment Landscape for AI Startups

Venture capitalists largely concur that investing in artificial intelligence necessitates a distinct strategy compared to previous technological advancements.

Aileen Lee, founder and managing partner of Cowboy Ventures, remarked during TechCrunch Disrupt 2025 that the current investment climate is unique. She highlighted that conventional investment principles have been altered, with certain AI-driven businesses achieving revenue growth from zero to $100 million within a single year.

Beyond Rapid Revenue Growth

However, Lee also emphasized that Series A investors are not solely focused on swift revenue expansion, according to research conducted by her firm. She described the evaluation process as employing “an algorithm with different variables and different coefficients.”

The factors now assessed by investors, as outlined by Lee, encompass the startup’s data generation capabilities, the robustness of its competitive advantages, the founders’ prior track record, and the technical sophistication of the product itself. The specific weighting of these factors will vary depending on the nature of the company.

Challenges in Securing Follow-On Funding

Jon McNeill, co-founder and CEO of DVx Ventures, a startup creation firm, observed that even companies experiencing rapid initial growth – reaching $5 million in revenue – frequently encounter difficulties in obtaining subsequent funding rounds. “I think this game has changed, and it is changing dynamically,” he stated.

McNeill pointed out that Series A investors are now applying the same stringent criteria to seed-stage startups that were previously reserved for more established businesses.

The Importance of Go-to-Market Strategy

“I think a lot of investors have figured out that the breakout companies, in most cases, don’t have the best tech,” McNeill explained, suggesting that Series A VCs are increasingly scrutinizing a startup’s ability to acquire and retain customers. “They have the best go-to market.”

A Balanced Perspective

Steve Jang, founder and managing partner of Kindred Ventures, expressed disagreement with the notion that a strong go-to-market strategy (GTM), referring to sales and marketing efforts, outweighs the importance of 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.”

McNeill later clarified that a solid product is indeed crucial, explaining that his earlier comment underscored the necessity for founders to develop a highly effective sales and marketing strategy from the outset. “Investors are getting much more sophisticated on the go-to market than they have in the past,” he added.

The Debate on Marketing Versus Technology

(This discussion regarding marketing versus technology was further highlighted during the conference by Roy Lee, founder of Cluely, who suggested that launching a minimally functional product, even with significant social media attention, might not always be the optimal approach.)

The Pressure for Rapid Innovation

Aileen Lee further noted that AI startups are now facing pressure to deliver product updates and introduce new features at an unprecedented rate, staying ahead of established companies potentially developing similar offerings. “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.

An Industry Still in its Infancy

Despite the expectations for rapid growth and accelerated product development, the panelists concurred that the AI industry remains in a nascent phase. Jang articulated this sentiment, stating, “There are no clear, outright winners, even in LLMs. There are competitors nipping at their heels.”

This dynamic environment implies that startups still possess the opportunity to challenge established leaders, regardless of their age or rate of growth.