Opinion
Is the existing VC model disappearing?
"The rise of AI-driven efficiency doesn't signal the end of venture capital as we know it, but it does mark a major evolution in how and when capital is deployed," writes Yaniv Jacobi, Co-founder and Managing Partner of Horizon Capital.
The venture capital landscape is undergoing a fundamental shift. Traditionally, startups path to secure funding was clear: a small seed round, a significant Series A, followed by large-scale growth rounds ranging from tens to hundreds of millions of dollars to accelerate growth. However, the increasing integration of artificial intelligence (AI) into development, marketing, and operational processes is reshaping this trajectory, at a pace that raises an important question: are venture capital investments still as necessary as they once were? As an early-stage VC firm, we see hundreds of startups each year. Over the last year we’ve been noticing a growing number of companies that require significantly less funding to reach critical milestones.
AI’s ability to optimize processes, shorten development cycles, and reduce resource requirements allows startups to achieve significant traction with far less capital. A SaaS company developing a complex AI-driven product today may not need the same capital-intensive approach. With leaner teams, open-source tools, and AI-powered marketing automation, these startups can drastically reduce their time to market (TTM), as well as development and operational costs. Consider the case of software startups that once needed $5 million to reach a market-ready product and acquire their first customers. Today, many are achieving the same results with half the funding, or even less.
We already see within our portfolio companies that used $1.5M of funding to reach $1.5M ARR. This shift is altering how startups approach fundraising. Instead of following a predictable, linear path, companies are embracing greater flexibility in capital raising. More startups are opting for bootstrapping or smaller funding rounds, allowing them to maintain greater control and ownership. As a result, venture funds are encountering startups at more advanced stages of maturity, sometimes with a solid customer base and revenue before even seeking their first institutional check.
How Is This Affecting the Venture Capital Model?
If this trend continues, we could see a fundamental restructuring of venture capital itself. The number of funding rounds may shrink, and check sizes could decrease. Growth-stage funds are already adapting to a world where less capital is required in later stages and possibly competing for earlier-stage deals to be more competitive.
This transformation presents a dual challenge for venture capital firms. On the one hand, it opens new opportunities: early-stage investments in AI-powered companies could generate even higher returns. On the other hand, funds that are structured to enter deals at later stages will need to adapt to a landscape where competition starts earlier.
For founders, this power shift means stronger negotiating leverage. Smaller funding rounds result in lower dilution, enabling them to retain a larger share of their companies. Additionally, heightened competition among investors could lead to more favorable deal terms for startups at the earliest stages. As seed investors we are much more aligned with the founders, therefore less dilution means better returns.
An Evolution, Not an Overnight Revolution
Despite the visible changes, the traditional capital-raising model isn’t disappearing overnight. Scaling quickly in a competitive market still requires meaningful capital. As technology continues to reduce costs and increase efficiency, the gap between startups that need $15-20 million to reach meaningful revenue and those that need $50 million will start closing. This likely means companies will require less funding to reach unicorn status. But does that mean these lean startups could beat your competitors with no money in their pockets? And growth funds will disappear or that large rounds will become obsolete? Not necessarily.
Founders who raise smart money, and not just big rounds, prove value quickly, and choose the right partners will be the ones who benefit most from this shift. The world is moving from a "raise as much as possible" mindset to a "raise wisely" approach and the path forward is still unfolding. The rise of AI-driven efficiency doesn't signal the end of venture capital as we know it, but it does mark a major evolution in how and when capital is deployed. Understanding how to navigate and leverage AI’s impact on funding strategies will be key to thriving in the next era of venture capital.
Yaniv Jacobi is the Co-founder and Managing Partner of Horizon Capital.
