The rise of agentic AI could lead to a major shift in the startup funding model as businesses seek less involvement from investors preferring to go to market on their own, according to a leading venture capital partner.
Speaking on a London Tech Week panel about building on the AI start-up momentum, Alex Schmitt, partner at Anthropic backer Lightspeed Ventures, described a new trend called “seed-strapping”.
This is when new startups will look to raise one or two funding rounds at the seed stage, but instead of progressing onto Series A funding and beyond, they are using recently developed AI agents to reach revenue and profitability without the need to scale up with later-stage investors.
Should the trend continue as AI tools meet more and more of the business development demands of new companies, the role of venture capital firms could be significantly reduced.
“It’s not aligned with the venture capital utility function, candidly speaking,” Schmitt admitted.
“So, we have to have a good conversation if you’re working with us and if that’s what you’re looking to do.”
Despite the practice raising questions about the future need for long-term venture capital and private equity support, Schmitt, a former founder himself, accepted it can greatly work in the favour of entrepreneurs.
“It makes more sense, because you’re basically having that ecosystem around you that’s going to enable you to build a much smaller company, quicker to revenue and frankly, to profitability,” Schmitt said. “As a former founder, that’s a really great place to be in.”
On the other side of the equation, Schmitt said he is seeing an unsustainable AI funding culture reminiscent of the dot com bubble at the turn of the century.
“A lot of companies that are building AI applications are raising hundreds of millions of dollars and are putting their valuation quite high up,” Schmitt added.
“They are going very quickly to market, building a lot of revenue, but then it is very unclear what the quality of that revenue is and whether they have a sustainable model and what the long-term profitable business model is.”
At that end of the AI funding spectrum “you will see some winners, but you will also see a lot of money burned,” Schmitt concluded.
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