VCs abandon old rules for a ‘funky time’ of investing in AI startups

If there’s one factor that VCs agree on when backing AI startups, it’s that AI requires a distinct funding strategy than prior technological shifts.

“It’s a cool time,” stated Aileen Lee, founder and managing companion of Cowboy Ventures, onstage at Trendster Disrupt 2025. The longtime VC famous that the foundations of investing have considerably shifted now that some AI firms are leaping from “zero to $100 million in income in a single 12 months.”

Nevertheless, Lee additionally famous that, primarily based on her agency’s analysis, Sequence A buyers aren’t simply looking for speedy income development. “It’s an algorithm with completely different variables and completely different coefficients.”

A number of the elements buyers now measure, in keeping with Lee, embrace whether or not the startup is producing information, the power of its aggressive moat, the founders’ previous accomplishments, and the technical depth of the product. “Relying on what your organization is, the output of the algorithmic system goes to be completely different,” she stated.

Jon McNeill, co-founder and CEO of startup creation agency DVx Ventures, acknowledged that even startups that develop quickly from inception to $5 million in income usually wrestle to safe follow-on funding. “I believe this recreation has modified, and it’s altering dynamically,” he stated.

McNeill famous that Sequence A buyers are actually making use of the identical rigorous requirements to seed-stage startups that they beforehand reserved for extra mature firms.

“I believe loads of buyers have found out that the breakout firms, generally, don’t have one of the best tech,” McNeill stated about why Sequence A VCs are wanting so intently at startups’ skill to draw and retain clients. “They’ve one of the best go-to market.”

Steve Jang, founder and managing companion of Kindred Ventures, disagreed {that a} robust go-to-market (GTM), an business time period for gross sales and advertising and marketing, holds better weight for buyers. “I don’t assume it’s 100% true to say mediocre know-how, nice GTM wins and raises cash and will get clients. I believe that it’s a obligatory requirement to have each.”

Whereas McNeill later clarified that having a stable product is essential, he indicated that his preliminary remark was associated to the founders’ must develop an exceptionally robust gross sales and advertising and marketing technique proper out of the gate. “Traders are getting far more subtle on the go-to market than they’ve previously,” he stated.

(The controversy over advertising and marketing versus tech was delivered to the forefront later in the course of the convention when Roy Lee, founding father of the viral startup Cluely, stated onstage that launching a product that hardly labored, even with huge social media fame, could not at all times be one of the best concept.)

Aileen Lee added that AI startups are actually underneath strain to ship product updates and new options at an unprecedented tempo, preempting present firms which may attempt to introduce related merchandise.  “In the event you take a look at how a lot OpenAI and Anthropic are transport, you’re going to have to determine how you can match how a lot you ship, how shortly and the standard of it,” she stated.

Regardless of the expectations for breakneck development and quick product growth, panelists agreed that the AI business continues to be in its very early phases. As Jang put it, “There are not any clear, outright winners, even in LLMs. There are rivals nipping at their heels.”

This implies startups nonetheless have a path to unseating perceived leaders, whether or not they’re decades-old firms or fast-moving newcomers.