Founder Fridays No. 131
The State of Startup Funding -- The AI Agent Problem -- Competing With the Big Guys
Happy Friday.
I recently had a fascinating conversation with Peter Walker, Head of Insights at Carta, who shared invaluable data on what's really happening in the startup funding landscape.
If you're building, investing in or working at a startup, this interview gives you the hard numbers behind the trends. Peter breaks down how 2024 compared to previous years, the dramatic impact of artificial intelligence (AI) on funding (now capturing 30% of all venture capitalist, VC, dollars), and why the metrics required to raise money have fundamentally changed (hint: $1 million annual recurring revenue, ARR, no longer gets you a Series A).
We also discussed some surprising findings: the rise in down rounds (now 20% of all deals), the negative signal sent by bridge rounds, founder equity splits, and why the Bay Area remains dominant despite all the talk of exodus.
Most importantly, Peter offers candid advice about choosing the right type of capital for your business: "If you take venture capital and don't grow at venture capital paces, you could kill your company."
I’ve included my Forbes article below, but you may want to watch the full video interview to get data-backed insights that will help you navigate this challenging but gradually improving funding environment.
Click here to watch the full interview with Peter Walker. While you’re there please like and subscribe for more quality content from me. Thanks.
Lastly, check out my March playlist which has a mix of pop and indie.
The State of Startup Funding
My latest Forbes article reveals how traditional venture capital timelines have elongated dramatically, creating a challenging environment most founders aren't prepared for. The data shows that 20% of all VC rounds in 2024 were down rounds — double the historical average — while the expected 18–24 month timeline between funding rounds has stretched significantly beyond that benchmark. Companies pursuing venture funding now face a substantially higher bar, needing to demonstrate metrics like $3 million ARR for Series A compared to the previous $1 million standard, with bridge rounds acting as potential warning signs for future fundraising difficulties. Despite modest improvement to $83 billion in total funding for 2024 (up from $75 billion in 2023), we remain far below the 2021 peak, with AI startups capturing 30% of all deployed capital. This venture capital reset demands founders be extraordinarily strategic about their funding choices, carefully matching their growth trajectory to the right capital source or risk having the wrong fuel in their engine. Forbes (6 minutes)
The AI Agent Problem
AI agents promise a trillion-dollar market by turning labor into software, yet most organizations remain paralyzed between enthusiasm and implementation. The critical gap lies in three missing infrastructure layers that must be built: an accountability system that shows exactly how AI reaches conclusions, a context layer that absorbs company culture and unstructured knowledge, and coordination systems enabling agents to work together seamlessly across organizational boundaries. As these foundational elements emerge, we'll witness the birth of entirely new markets, including specialized tools built specifically for AI agents to use rather than humans. NFX (20 minutes)
Competing With the Big Guys
The greatest competitive advantage for startups isn't technology or talent — it's attacking a large company's profitable revenue stream when they can't afford to compromise, exactly as Clayton Christensen described in The Innovator's Dilemma. When established companies generate significant profits, they become prisoners to their own success, unable to lower prices without decimating their earnings and stock value. A startup with a fundamentally different cost structure can offer similar solutions at dramatically lower prices, knowing the incumbent mathematically cannot follow them downmarket without Wall Street punishment. However, this strategy only works when targeting the cash cow business line itself — attacking a loss-leader is suicide since the established company can deploy unlimited resources without profit expectations. A Smart Bear (4 minutes)
Founder FAQ: What Are the Startup Compensation Mistakes to Avoid?
The invisible architecture of your compensation strategy may determine your startup's survival more than your product. Without clear compensation frameworks — including structured leveling, geographic considerations, explicit bonus guidelines, equity education and competitive benefits — startups risk creating a culture of uncertainty where top talent feels undervalued and exits at crucial moments. When startups make case-by-case compensation decisions rather than implementing systematic banding, they inadvertently cultivate perceived unfairness and simmering resentment that gradually erodes team cohesion. The most successful startups continuously adapt their compensation approaches to changing market conditions, recognizing that transparent pay philosophies create the psychological safety and shared purpose that enable innovative teams to thrive through challenging growth periods. Westaway (4 minutes)
Startup Funding Guides
I’ve put together a series of guides to equip founders to excel at fundraising. These guides break down the deal term by term and give you negotiation tips so that you can speak to investors with confidence.
Convertible Note: Guide / Video
An Innovative Law Firm?
Being listed among Fast Company's “Most Innovative Companies” is an honor for our law firm, yet we believe innovation matters if it actually produces better outcomes for startups. Here’s how we’ve innovated to better serve startups:
Clear Pricing. Traditional billable hours can lead to misaligned objectives and unexpected fees. We've replaced this with straightforward, flat-rate pricing.
General Counsel. Most entrepreneurs want a trusted legal partner, but they hate surprise legal bills. At Westaway, we take care of your startup’s legal needs for a fixed, monthly fee so you can control your costs and focus on scaling your business.
Automation and Artificial Intelligence (AI). We've streamlined our operations through automation and AI (where appropriate), ensuring efficient, high-caliber results.
If you’re an innovative startup looking for an innovative law firm, let’s talk.
Post of the Week
