AI Has Flipped the VC Playbook

I spent a few days at the Elevate conference in Toronto this week. Lots to digest, most of it AI related. One topic that really struck me was the AI led proliferation of start-ups and the impact on Venture Capital.

The core of the issue is AI has made it easier than ever to build a viable product. It has also therefore made it harder to identify truly exceptional startups. This is forcing VCs to focus less on product and even more on the people behind it - with consequences for median investment, desired outcomes and more.

The AI Democratization Dilemma

Launching a startup used to require a significant amount of technical expertise and resources. Building a minimum viable product (MVP) meant coding from the ground up, a hurdle that naturally filtered out the weaker propositions. Today, that barrier has reduced to... well, not zero. But the word 'Democratization' is being thrown around for a reason.

We've shifted from an era of painstaking, custom creation to one of leveraging AI platforms to assemble solutions very quickly indeed. Sam Altman no less has even called this Software's 'fast fashion' moment. This democratization of innovation comes with a major consequence for investors.

Venture capitalists are now wading through a flood of "good enough" startups. Identifying true value creation can feel like finding a needle in a haystack.

How VCs Are Rewriting the Playbook

With the old signals becoming less reliable, the focus is shifting from "what" is being built to "who" is building it and "how" they operate.

VCs are digging deeper to understand the DNA of a team. They're even more emphasis on:

• Resilience and Adaptability: How does the team handle setbacks? Can they pivot quickly when the market shifts?

• Deep Industry Knowledge: Does the team possess unique insights into the problem they are solving that AI can't replicate?

• Exceptional Leadership: Can the founders inspire a team and navigate the pressures of a rapidly scaling business?

The same GenAI capabilities that lowered the barrier to entry have also raised the bar for performance. With product development accelerated, investors expect to see revenue generation and market traction much sooner. The "growth at all costs" mindset that dominated start-up-land is being replaced by a sharp focus on early revenue, profitability and operational efficiency.

Founders are now under immense pressure to demonstrate that they can run a tight, efficient business from day one. This means having a clear go-to-market strategy, disciplined financial management, and a scalable operational model.

This trend has led to VCs making fewer bets but writing larger cheques. Data shows a move toward larger median funding rounds, indicating a flight to quality and a desire to de-risk investments. For entrepreneurs, this means the competition for early-stage funding is fiercer than ever. You don't just need a great idea; you need to prove you are the safest, fastest route to revenue.

The VC playbook has evolved. The democratization of technology has forced three major shifts—even greater focus on team, immense operational pressure to generate sustainable revenue fast, and more selective funding strategies. VCs are looking past the AI-generated gloss to identify substance, resilience, and vision. Successful founders proving operational excellence path to a profitable business straight off the bat.

If any of this strikes a chord, visit www.theohildyard.com or email me at info@theohildyard.com to get in touch.