If there’s one thing VCs agree on when backing AI startups, it’s that AI requires a different investment approach than prior technological breakthroughs.
“It’s a strange time,” said Eileen Lee, founder and managing partner of Cowboy Ventures, on stage at TechCrunch Disrupt 2025.
However, Lee also said that, based on his firm’s research, Series A investors are not just looking for rapid revenue growth. “It’s an algorithm with different variables and different coefficients.”
According to Lee, factors investors now measure include whether the startup is generating data, the strength of its competitive moat, the founders’ past achievements and the technical depth of the product. “The output of the algorithmic formula will vary depending on what your company is,” he 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 creation firm DVX Ventures. “I think the game has changed and it’s changing dynamically,” he said.
McNeil said Series A investors are now applying the same rigorous standards to seed-stage startups that they previously reserved for more mature companies.
“I think a lot of investors have figured out that breakout companies, in most cases, They don’t have the best technology,” McNeil said about why Series A VCs are watching startups’ ability to attract and retain customers so closely. “They have the best option for the market.”
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Steve Jang, founder and managing partner of Kindred Ventures, disagreed that a strong go-to-market (GTM), an industry term for sales and marketing, holds more value for investors. “I don’t think it’s 100% true to say that average tech wins great GTMs and raises money and gets customers. I think it’s a necessity to have both.”
While McNeil later clarified that having a solid product is important, he indicated that his initial comments were related to the need for the founders to develop an exceptionally strong sales and marketing strategy right out of the gate. “Investors are becoming more sophisticated in the markets than ever before,” he said.
(The debate over marketing versus technology came to a head later during the conference when Roy Lee, founder of viral startup Cluly, said on stage that launching a product that barely works even with massive social media fame might not always be the best idea.)
Eileen Lee said AI startups are now under pressure to deliver product updates and new features at an unprecedented pace, leaving behind existing companies that might try to offer similar products. “If you look at how much OpenAI and Anthropic are shipping, you have to figure out how much you ship, how quickly, and how to match the quality of it,” she said.
Despite expectations for tremendous growth and rapid product development, panelists agreed that the AI industry is still in its early stages. As Jang said, “Even in LLM there is no clear, absolute winner. There are competitors digging in their heels.”
This means that startups still have a way to go to unseat perceived leaders, whether they’re decades-old companies or fast-growing new companies.
