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

Venture capitalists are recognizing that the investment landscape for AI startups has transformed dramatically, necessitating a fresh approach. Aileen Lee, founder and managing partner of Cowboy Ventures, highlighted this shift during her appearance at TechCrunch Disrupt 2025, stating, "It’s a funky time." She emphasized that the traditional rules of investment no longer apply, especially as some AI companies achieve rapid revenue milestones, hitting $100 million in just a year. Lee pointed out that Series A investors are now looking beyond mere revenue figures. Her firm’s research indicates that a multitude of factors plays into their decision-making process. Elements such as data generation, the strength of a startup’s competitive advantages, the founders’ track records, and the technological sophistication of the product are all under scrutiny. "The output of the algorithmic formula is going to be different depending on your company," she added, indicating a tailored approach to each investment. Jon McNeill, co-founder and CEO of DVx Ventures, provided further insights, noting that even startups achieving quick growth to $5 million in revenue face challenges in securing additional funding. He remarked, "This game has changed, and it is changing dynamically," indicating that Series A investors are applying stringent criteria to early-stage startups, akin to those they used for established companies. McNeill also observed that the most successful companies often excel in their market strategies rather than merely possessing superior technology. He stated, "Investors have figured out that the breakout companies don’t always have the best tech; they have the best go-to market strategies." However, Steve Jang of Kindred Ventures contested this perspective, arguing that both robust technology and effective marketing are essential for success. He clarified that while a strong sales and marketing strategy is important, it should not overshadow the need for a viable product. As the conversation evolved, the panelists acknowledged the intense pressure on AI startups to innovate rapidly. Lee remarked on the fast-paced product development cycles exemplified by leaders like OpenAI and Anthropic, urging startups to match their speed and quality in delivering new features. Despite the high expectations for swift growth and innovation, the consensus remained that the AI sector is still nascent. Jang aptly noted, "There are no clear, outright winners, even in LLMs. There are competitors nipping at their heels," suggesting that opportunities for disruption and competition abound, even against established giants.