Silicon Valley is witnessing a shift in how AI-powered startups approach venture capital, with some founders opting for less funding to maintain greater control.
Terrence Rohan, an investor with Otherwise Fund, observes a “vibe shift” among founders in the current Y Combinator batch. One founder, expressing his preference on X (formerly Twitter), stated, “People used to climb Everest and they needed oxygen. Today, people climb it without oxygen. I want to summit Everest and use as little oxygen (VC) as possible.” This sentiment arises not from a lack of investor interest but from a desire to retain more ownership. Alexis Ohanian, founder of Seven Seven Six and Reddit co-founder, praised this approach as that of a “smart founder.”
Raising less capital enables founders to keep a larger ownership stake in their companies, offering them more operational and potential exit options, Rohan explained to TechCrunch. Indeed, it’s becoming increasingly common for Y Combinator startups to raise less than what investors offer, as reported by TechCrunch last year.
However, Parker Conrad, co-founder and CEO of Rippling, the HR tech startup valued at $13.4 billion, disagrees. He argues that less capital could hinder a startup’s success. He wrote on X, “The way this will play out is a competitor will raise a ton of financing, invest more deeply in R&D, build a better product, and absolutely crush this guy with sales and marketing. You have to play the game on the field.” Conrad highlights that more funding can accelerate company growth, even though it’s feasible to build a solid product with a small engineering team.
Rohan acknowledges Conrad’s point but believes the environment is changing. He stated, “Folks are getting to substantial revenue quicker and with fewer people, and it’s a belief that maybe they can sustain that revenue with fewer people.”
Early examples suggest that fast-growing AI companies are still securing as much capital as possible. For instance, Anysphere, creators of the AI-coding assistant Cursor, reportedly achieved $100 million in annual recurring revenue (ARR) with a team of just 20 people. Anysphere is now reportedly in talks to raise capital at a $10 billion valuation, months after its prior round. ElevenLabs, an AI-powered voice-cloning startup, reached a similar ARR with only 50 employees and announced a $180 million Series C financing at a $3.3 billion valuation in January. This round probably secured the company’s ARR at approximately $80 million, as reported earlier by TechCrunch.
Meanwhile, Anysphere’s staff now numbers 90, and ElevenLabs has 200 employees, according to data provided by PitchBook.
Other AI startups are also receiving funding at a rapid pace, showing that they strive for capital even while keeping staff sizes relatively small. Rohan notes that “VCs are very charming and persuasive, and they’re throwing money,” and that these companies are likely obtaining funding with low dilution, indicating they aren’t relinquishing significant ownership.
More and more Y Combinator founders are aware of the advantages and disadvantages of venture capital, he said. Many startups that secured funding at inflated valuations in 2020 and 2021 were later compelled to raise capital at much lower valuations, known as a down round. Some Y Combinator founders are no longer primarily focused on raising large sums of capital from elite VC firms. Rohan explains, “It’s just a different tone and conversation versus, ‘I want to raise this round, and then I want to have Sequoia and Benchmark lead my Series A.’”
