Navigating the Evolving Venture Capital Landscape in the AI Era

In today’s rapidly evolving startup ecosystem, particularly within the AI-dominated funding landscape, entrepreneurs face a shifting set of expectations when seeking venture capital. During a recent Seattle AI Week panel discussion, Kellan Carter, founding general partner at Bellevue-based Fuse, and Rohan D’Souza, CEO and co-founder of Seattle healthcare benefits startup Avante, shared invaluable insights for founders navigating this new terrain. Their conversation highlighted how relationship building, problem-solving focus, and distribution strategies have become critical components for startup success in the current investment climate.

The relationship between Carter and D’Souza exemplifies the importance of trust in the venture capital world. Fuse led Avante’s $10 million seed round in late 2023, before the company had generated significant revenue. This investment wasn’t made hastily but was built on a foundation of trust established years earlier. “There’s so much trust that had been built,” Carter reflected during the panel. This relationship-first approach underscores a crucial reality for founders: while your product and vision matter tremendously, the personal connections and credibility you establish with potential investors over time can often make the difference between securing funding or walking away empty-handed. For entrepreneurs, this means viewing networking and relationship building not as secondary activities but as fundamental components of their fundraising strategy.

The venture funding landscape has undergone dramatic changes, with AI creating unprecedented opportunities and challenges. The median Series A round in Q1 2024 was $7.9 million according to Carta data, but the range has widened dramatically, with some companies raising over $200 million in their Series A rounds. “The variance for Series A is wider than ever,” Carter observed. This polarization reflects how AI has transformed investor expectations. Companies securing massive early rounds typically possess what Carter calls “unfair insight” – a unique perspective or opportunity that creates strong investor conviction because “the prize is so big right now.” For founders, this means articulating not just a viable business model, but demonstrating how their specific insights could lead to outsized returns. With AI accounting for 51% of all funding and 22% of deals in Q3, according to CB Insights, founders must carefully consider how they position their ventures within this landscape, even as Carter jokes that AI is “always in the pitch now – even if it’s not AI.”

The panel discussion revealed that successful founders demonstrate domain expertise and address high-priority customer problems better than their competitors. Carter emphasized that investors favor entrepreneurs who have “insight that’s going to give them credibility in a customer conversation.” Beyond technical prowess, distribution strategy has become increasingly important in the AI era. “Product won’t win,” Carter stated bluntly. “Distribution will win.” This represents a significant shift from earlier phases of tech investment, where innovative product features often took center stage. Today’s successful founders combine domain experience with clever distribution strategies tailored for an AI-dominated marketplace. D’Souza added an important nuance about communicating AI benefits: with customers, founders must address the “fear of messing up” by showing how AI unlocks new productivity, while investors need to understand how AI improves business margins through efficiencies like faster customer acquisition and smoother onboarding processes.

Avante’s journey offers practical lessons for founders preparing to scale their startups. The company officially launched earlier this year with a software product aimed at reducing HR administration workload and benefits program costs. As D’Souza contemplates raising a Series A round, he recognizes that additional funding serves beyond just operational needs – it signals stability to enterprise buyers who might otherwise hesitate to partner with a small, early-stage company. “There’s a little bit of that perception of, what will happen if these guys go away?” he explained, noting that more “gas in the tank” reassures potential clients even when the company doesn’t immediately need the capital. This strategic perspective on fundraising – viewing it as both financial resource and market signal – offers valuable insight for founders approaching their own capital raises. D’Souza also advises founders to focus less on similar startups and more on incumbent competitors, asking, “What are they doing to unlock a feature set? And how do you get there much faster?”

The conversation also touched on crucial strategic decisions regarding competition and transparency. Carter revealed that Fuse avoids investing in companies that might directly compete with tech giants like Microsoft, Amazon, OpenAI, or Anthropic. “If we think that there is an inkling that they’re going to release a product and the next thing you know, everyone is competing against free or bundling – that’s a problem,” he explained, highlighting the risks of entering spaces where major players can undercut startups through pricing or bundling strategies. D’Souza emphasized the importance of transparency with investors about timelines and expectations. Avante deliberately planned for no recurring revenue in 2024, instead running a strategic early adopter program that wasn’t free, then emerging from stealth mode in April 2025 to convert pilots into multi-year deals. “We created a little bit of scarcity and FOMO around this concept of an early adopter program,” he explained. His parting advice to fellow founders encapsulates a critical success factor in today’s competitive landscape: “focus on the one core thing that you do 100X better.” This philosophy of concentrated excellence, rather than attempting to compete across multiple fronts, may offer the clearest path to success for startups navigating the complex waters of AI-era venture funding.

For founders seeking capital in this environment, the lessons from Carter and D’Souza point to a nuanced approach that balances technological innovation with strategic relationship building, domain expertise, and focused excellence. As AI continues to reshape the investment landscape, entrepreneurs who can articulate their unique insights, demonstrate clear distribution advantages, and maintain transparency with investors will find themselves best positioned to secure the capital needed to bring their visions to life. The era of simply having a good product is giving way to a more sophisticated funding environment where strategic thinking about market position, competitive advantages, and long-term sustainability have become essential components of a successful pitch.