The once-traditional Silicon Valley approach to building startups—raise as much venture capital (VC) as possible—seems to be changing as a new breed of founders embraces the power of AI and its leaner, more efficient business models. As artificial intelligence continues to captivate the tech world, AI-driven companies are proving that less can sometimes be more. With minimal teams, some AI startups are scaling rapidly, reaching millions in revenue with headcounts as low as 20. The result? Founders are increasingly turning down large funding rounds, reshaping the dynamics of early-stage venture capital.
Terrence Rohan, a seasoned investor at Otherwise Fund who’s backed Y Combinator (YC) startups since 2010, is witnessing a significant “vibe shift” among today’s YC founders. In a tweet from last week, one founder put it bluntly: “People used to climb Everest with oxygen. Now, they climb it without. I want to summit and use as little oxygen (VC) as possible.”
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While this statement wasn’t a reflection of a lack of investor interest—Rohan notes the round was oversubscribed—the sentiment reveals a fundamental shift. Founders no longer see VC funding as the be-all and end-all but rather a resource to be used sparingly.
Alexis Ohanian, co-founder of Reddit and partner at VC firm Seven Seven Six, echoed Rohan’s thoughts, calling the founder “smart.” Raising less capital allows these founders to maintain a larger stake in their companies, giving them more control over future decisions, whether it’s scaling, selling, or going public. This trend of raising less than what’s offered by investors has become increasingly common among YC startups, with TechCrunch reporting this shift last year.
The Other Side Of The Coin
However, not everyone is sold on this minimalist funding approach. Parker Conrad, the co-founder and CEO of Rippling, a $13.4 billion-valued HR tech startup, warns that skimping on capital could be a risky move. “The reality is a competitor will raise a ton of financing, invest heavily in R&D, and outpace you in product development, marketing, and sales,” Conrad wrote on X.
While it’s possible to build a product with a lean engineering team, Conrad believes that more funding accelerates growth and gives companies a fighting chance in a competitive market.
Rohan acknowledges this classic argument but contends that the playing field is changing. “More and more companies are reaching significant revenue faster, with smaller teams,” he says. “Maybe the real question is whether they can sustain that revenue with fewer people in the long run.”
For now, it’s unclear whether Rohan and the founders opting for minimal funding will prove right. However, early success stories suggest that leaner operations can still yield impressive results. Take Anysphere, the company behind the AI-powered coding assistant Cursor. It reached $100 million in annual recurring revenue (ARR) earlier this year with just 20 employees. Anysphere is now in talks to raise at a $10 billion valuation just months after its last round.
Similarly, ElevenLabs, an AI voice-cloning startup, hit $100 million in ARR with only 50 people and secured a $180 million Series C round in January at a $3.3 billion valuation. Though the company’s headcount has since grown, it’s clear that scaling without bloated teams is not only possible but increasingly popular.
The Allure Of Capital
Despite this trend toward minimalism, many AI startups are still attracting substantial funding. As Rohan points out, “VCs are incredibly persuasive, and these companies are securing funding with minimal dilution.” In other words, they’re raising capital without giving up a large chunk of ownership, which is an attractive proposition for founders.
But the landscape has changed. After the boom in valuations during 2020 and 2021, many startups had to raise capital at much lower valuations in subsequent rounds, known as “down rounds.” This experience has made founders more cautious about how much venture capital they take on—and how much control they relinquish.
The bottom line: The old VC playbook is no longer the only option. For some YC founders, big-name investors and billion-dollar rounds are no longer the ultimate goal. Instead, it’s about maintaining control, building sustainable growth, and keeping the focus on the long-term vision, not the short-term cash influx. This shift in mindset is reshaping the way startups think about venture capital, and it’s one to watch as the AI revolution continues to unfold.
