According to TechCrunch, AI startups are forcing venture capitalists to completely rewrite their investment rules, with some companies leaping from “zero to $100 million in revenue in a single year.” Aileen Lee of Cowboy Ventures called it a “funky time” for investing, noting that Series A investors aren’t just chasing rapid revenue growth but evaluating startups using an “algorithm with different variables and different coefficients.” These new factors include whether startups generate their own data, build competitive moats, have accomplished founders, and demonstrate technical depth. Jon McNeill of DVx Ventures revealed that even startups hitting $5 million in revenue quickly struggle to secure follow-on funding, while Steve Jang of Kindred Ventures debated whether strong go-to-market strategies outweigh technical excellence.
Funky Times Ahead
Here’s the thing – when you’ve got companies going from zero to $100 million in revenue in twelve months, the old VC playbook basically becomes useless. That kind of growth trajectory would have been science fiction just a few years ago. And it’s not just about the speed – it’s about what investors are looking for now. They’re not just checking the usual boxes about market size and team experience.
Instead, they’re running what Lee calls an “algorithm with different variables.” What does that actually mean in practice? Well, it means they’re looking at whether your startup is generating proprietary data that becomes more valuable over time. They’re evaluating your technical moat – can competitors easily replicate what you’re building? And they’re digging deep into the founders’ backgrounds in ways they didn’t before.
The GTM Debate
Now here’s where it gets interesting. McNeill dropped this bombshell: “I think a lot of investors have figured out that the breakout companies, in most cases, don’t have the best tech. They have the best go-to market.” That’s a pretty radical statement in an industry that’s supposedly all about technical innovation.
But Jang pushed back hard on that idea. He basically said you can’t just have mediocre technology with great marketing and expect to win. The reality probably lies somewhere in between. Having a solid product is table stakes, but without an exceptional go-to-market strategy from day one, you’re probably not getting funded. Investors have gotten way more sophisticated about evaluating sales and marketing capabilities than they were in the past.
The AI Arms Race
And then there’s the shipping pressure. Lee pointed out that startups now have to match the development pace of giants like OpenAI and Anthropic. Think about that for a second – small startups are expected to ship product updates and new features at the same speed as companies with billions in funding and hundreds of engineers.
That creates this insane pressure cooker environment where you’re not just building a product – you’re racing against both established players and other startups who might launch something similar. The quality has to be there too, which makes the whole balancing act even more challenging.
Early Days Still
Despite all this breakneck growth and intense competition, the crazy part is that everyone agrees we’re still in the very early innings of AI. As Jang put it, “There are no clear, outright winners, even in LLMs.” That means there’s still plenty of opportunity for new players to emerge and challenge the current leaders.
So what’s the takeaway for founders? Basically, you need to be exceptional at everything simultaneously – technology, data generation, go-to-market, and rapid iteration. The bar has been raised dramatically, but the potential rewards are bigger than ever. It’s a high-stakes game with new rules being written every day.
