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

If there’s one thing venture capital firms agree on when backing AI startups, it’s that AI requires a different investment approach than previous technology shifts.

“It’s a funky time,” said Aileen Lee, founder and managing partner of Cowboy Ventures, on stage at TechCrunch Disrupt 2025. The longtime VC noted that the rules of investing have shifted significantly as some AI companies jump from “zero to $100 million in revenue in a single year.”

However, Lee also noted that, based on her company’s research, Series A investors aren’t just looking for rapid revenue growth. “It’s an algorithm with different variables and different coefficients.”

Some of the factors investors are now measuring, Lee said, include whether the startup generates data, the strength of its competitive position, the past performance of its founders and the technical depth of the product. “Depending on what your business is, the output of the algorithmic formula will be different,” she said.

Jon McNeill, co-founder and CEO of startup creation company DVx Ventures, stated that even startups that grow quickly to $5 million in revenue from inception often struggle to secure follow-on funding. “I think this game has changed, and it’s changing dynamically,” he said.

McNeill noted that Series A investors are now applying the same rigorous standards to early-stage startups that they previously reserved for more mature companies.

“I think a lot of investors have figured out that the breakout companies in most cases They don’t have the best technology,” McNeill said of why Series A VCs look so closely at startups’ ability to attract and retain customers. “They have the best go-to market.”

Steve Jang, founder and managing partner of Kindred Ventures, disagreed that a strong go-to-market (GTM), an industry term for sales and marketing, carries more weight for investors. “I don’t think it’s 100% true to say that mediocre technology, great GTM wins, raises money and gets customers. I think it’s a necessary requirement to have both.”

Although McNeill later made it clear that having a solid product is important, he indicated that his initial comment was related to the founders’ need to develop an exceptionally strong sales and marketing strategy right from the start. “Investors are becoming much more sophisticated in the go-to market than in the past,” he said.

(The marketing versus technology debate came to the fore later in the conference when Roy Lee, founder of the viral startup Cluely, said on stage that launching a product that barely worked, even with huge social media fame, might not always be the best idea.)

Aileen Lee added that AI startups are now under pressure to deliver product updates and new features at an unprecedented pace, staying ahead of existing companies that might try to introduce similar products. “When you look at how much OpenAI and Anthropic are sending, you have to figure out how to match how much you’re sending, how fast, and what the quality is,” she said.

Despite expectations of breakneck growth and rapid product development, panelists agreed that the AI ​​industry is still in its very 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 a way to dethrone perceived leaders, whether they are decades-old companies or fast-moving newcomers.