Venture capital firms are abandoning old rules for a “non-traditional time” to invest 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 an unconventional time,” said Eileen Lee, founder and managing partner of Cowboy Ventures, on stage at TechCrunch Disrupt 2025. The long-time venture capital firm noted that investment rules have changed dramatically now that some AI companies have jumped from “zero to $100 million in revenue in one 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 parameters.”

Some of the factors investors are now measuring, according to Lee, include whether the startup is generating data, the strength of its competitive moat, the founders’ past accomplishments, and the technical depth of the product. “Depending on what your company is, the results of the algorithm will be different,” she said.

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

Series A investors now apply the same stringent standards to seed-stage startups that they previously reserved for more mature companies, McNeil noted.

“I think a lot of investors have discovered that successful companies, in most cases, “You don’t have the best technology,” McNeil said of why Series A venture capital firms look more closely at startups’ ability to attract and retain customers. “They have the best markets to go to.”

Steve Jung, founder and managing partner of Kindred Ventures, disagrees 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% correct to say that mediocre technology, great GTM wins, raises money and attracts customers. I think it’s necessary to have both.”

While McNeil later explained that having a strong product was important, he noted that his initial comment was related to the founders’ need to develop an exceptionally strong sales and marketing strategy immediately. “Investors are more sophisticated in the market than they were in the past,” he said.

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

Elaine Lee added that AI startups are now under pressure to deliver product updates and new features at an unprecedented pace, pre-empting incumbent companies that may be trying to introduce similar products. “If you look at the quantity that OpenAI and Anthropic are shipping, you’ll have to figure out how to match the quantity they’re shipping, how fast and how high quality it is,” she said.

Despite expectations of explosive growth and rapid product development, participants agreed that the AI ​​industry is still in its very early stages. As Jang puts it: “There are no clear winners, even in MBAs. There are competitors chasing them.”

This means that startups still have a way to go to unseat perceived leaders, whether they are decades-old companies or fast-moving new companies.