As AI leaders such as Sam Altman warns of potential bubbles, it seems logical for investors to retreat. Instead, venture capitalists say they are doubling down, despite being in a more deliberate and strategic way.
“Every investor I talked to said that 90% of new investments are in areas related to AI,” Crunchbase’s senior data editor Gené Teare told Observer. “AI is the center. Every one of these investors, they hope that investment will be part of the next wave.”
Teare sees existing investors buzz centered on AI-based and coding and customer service startups. She added that investors “are very focused on investing in companies at the seed or Series A level, and they will be emerging or largest companies for 5 to 10 years.” According to Crunchbase, the most promising companies tomorrow may be in the AI infrastructure and cybersecurity office.
Even though the peak of $700.2 billion from 2021 and lower venture capital compared to more than half of the prices in 2024, investors remain active, albeit more selective. “For most of these investors, they won’t invest in large numbers of companies. They have made very targeted bets in companies they think will become established in the next period,” Teare said. This approach has fueled record rounds, including this year,” he said. $40 billion to Openai.
AI is changing the way VCS invests
The rapid development of AI has not only changed the companies invested in by companies VCS; it is changing the way they invest.
“We are trying to help analyse potential customers,” Michael Stewart, managing partner at Microsoft venture capital fund M12, told Observer. M12’s portfolio includes companies such as Teledoc Health, HR Software Beamery and retail advertising platform GroundTruth. Although the M12 still takes a traditional approach, through conferences and networks, the team now uses AI to analyze these clues, research unit economics, pricing strategies and fundamental techniques.
Stewart didn’t specify the tools they used, but said the M12 had moved from an external customer relationship management system to Microsoft’s own technology. Trading platforms such as Affinity and Carta also integrate AI into their products. Last year, Anthropic partnered with Menlo Ventures to open an anthology fund, which uses Claude to recommend startups to invest.
Despite all the changes, there are still some venture capital fundamentals. Customer acquisition cost and lifetime value remain key indicators. Crunchbase’s Teare notes that founder quality is more important than ever. “There are a lot of companies following the same market, so it’s the founder’s lineage,” she said. “It could be a repeat founder who has done before, or a new founder with an angle in the market, or a certain amount of energy and courage they think can carry it on.”
While some startup founders choose to deceive themselves, Stewart notes that given the huge cost of AI, the huge cost of hiring top talent, ensuring GPUs and scaling infrastructure, this is very little in AI, and most cutting-edge AI Ventures still require external funding, although the potential of the technology can reduce turnover.
This competitive environment prompted Stewart to ask the founder the thorny question: “How do you show that you are changing the behavior of your customers? He said that because of so much use of AI, it is a key difference to prove true recurring revenue outside of the pilot program.
Like many AI investors, M12 is also focusing on infrastructure. “We are in this energy-constrained world and we want to expand solutions globally,” Stewart said. “If it is not resolved, these things will be limited by fate, so it’s chips, it’s the networks, it’s the end point where you provide AI.”
Despite this, the challenge remains. As Stewart pointed out, the funding rounds are getting bigger and bigger at an earlier stage, which puts pressure on those that have matured investments. “Mathematically, it’s possible to go bigger, but you need to let those bets in the venture capital industry mature these leaders,” he said.
