A recent article in the Los Angeles Business Journal highlights a reality many founders are experiencing firsthand: venture capital is increasingly concentrating around a small number of artificial intelligence companies.
Last year, AI accounted for more than 65% of total venture deal value, with a massive share of capital flowing into a handful of companies building large foundational AI models and infrastructure. While innovation in AI continues to accelerate, this concentration of capital has created a much tighter fundraising environment for early-stage founders across other sectors.
At Plug In Ventures, we are seeing this shift play out in real time.
Investors today are asking for significantly more proof before committing capital. Pre-seed and seed stage companies are increasingly expected to demonstrate real product traction, early customer adoption, and clear market validation before raising meaningful funding. In many cases, founders who might have raised on vision alone just a few years ago now need to show real revenue or strong usage metrics.
This has effectively raised the bar for early-stage fundraising.
At the same time, AI is also changing how startups are built. Founders now have access to tools that allow them to build products faster, operate with smaller teams, and move to market more quickly than ever before. In some cases, companies can reach meaningful traction with far less capital than was previously required.
However, simply adding AI to a product is no longer enough to attract investors.
What investors increasingly want to see is defensibility — strong distribution channels, differentiated products, unique customer insights, and founders who can demonstrate why their company can win long-term in the market.
In this environment, founders are adapting. Some are choosing to bootstrap longer. Others are focusing more intensely on revenue generation before raising capital. And many are building companies that can operate efficiently while navigating a more competitive funding landscape.
While the venture market continues to evolve, one thing remains clear: the founders who succeed will be those who combine strong execution, clear market insight, and the ability to build resilient companies regardless of market cycles.
For founders building today, the opportunity is still enormous — but the path to capital requires sharper focus, stronger traction, and a deeper understanding of how the venture landscape is shifting.
You can read the full article in the Los Angeles Business Journal here: https://labusinessjournal.com/featured/ai-crowds-out-startups/