Imagine telling a tech founder in 2020 that before they can raise their first institutional round, they should have a built prototype, product usage, distribution experiments and some initial revenue.

Most founders would’ve laughed nervously and assumed you’re being unreasonable or delusional.

But that’s already what many investors expect today. Investors expect a certain level of traction before they get comfortable writing an early check. Pre-seed hasn’t disappeared, but its purpose and qualifications are now dramatically different.

Five years ago doesn’t seem like a long time. But if you’re a startup founder, this period can feel like an eternity. Within that phase the market has shifted in multiple directions at once, causing chaos and uncertainty, but it has also given rise to a new kind of entrepreneur: the Lean Founder. These are founders using AI, automation and readily available technology to accomplish dramatically more with less capital, fewer people and less time. That’s already a big chunk of the current founder population and has emerged with force over the past 24 months.

Back in 2018, the tech startup playbook was quite simple. If you were a founder with an impressive education, some relevant work or startup experience and an idea that made a ton of sense on paper, one that solved a problem everyone thought could disrupt an industry, there was a good chance you could find a pre-seed investor excited to invest in you.

For years, pre-seed capital existed only because startups were expensive to build. You had to hire engineers, design products, build infrastructure, market your product and plan your launch, all before a founder could answer one simple question: “Does anyone actually want what I am building?”

Today, a founder can start a company in stealth, design and build a prototype in weeks, launch a pilot and get traction from a group of customers they acquired through off-the-shelf automated email software that targets exactly who they want to sell to.

When proving an idea becomes dramatically cheaper, investors naturally expect founders to do more before seeking institutional capital. They may also gravitate toward the capital-light startup that is easier to prove because there is less risk to the investment.

There is an important exception to this argument. AI hasn’t made every startup inexpensive to build. Companies that require foundational or physical infrastructure, such as robotics, advanced manufacturing, energy or supply chains, still require meaningful capital to get off the ground. I believe these harder-to-build businesses may become increasingly valuable and defensible in the age of AI, but that is an argument for another article.

For the growing number of application-layer and AI-native software startups, the equation has fundamentally changed. When a founder can build, test, acquire early customers and potentially generate revenue with a fraction of the people and capital previously required, investors reasonably expect far more evidence before writing the first institutional check.

To clarify, this doesn’t mean pre-seed investing disappears. It does mean that the goalposts have shifted and the definition of success carries much higher expectations before institutional money is deployed.

It also carries the tendency to see far more risk-averse, groupthink type investing. Investors are now making safer and more calculated bets. The data appears to support this increased selectivity. According to Carta the number of seed rounds fell 28% year over year in the first quarter of 2025, while the median seed valuation increased 18% to $16 million. In other words, fewer companies were getting funded, while those that did were commanding higher valuations. The tendency is to look for the same types of companies that can demonstrate earlier measurable results, including revenue, before writing what is technically still called a pre-seed check.

The label remains the same but the qualifications and expectations have changed.

What To Do if You Need Capital to Start

So, what do you do if you have a good idea but you need startup capital to start?

First, learn how to bootstrap your idea. Understand the tools, available applications and steps required to establish a prototype and proof of concept for as little cost as possible. This has become a mandatory first step before even getting into a pitch. Big ideas still get funded but only if you provide evidence that you know exactly what to do with their money. That’s the new norm.

Second, understand who your initial pre-seed investor should be.

The first believers are increasingly people investing in the founder who has the mentality I shared above, rather than simply investing in the business. These are friends and family, former colleagues, successful entrepreneurs, potential customers and strategic partners. Their capital is often what will enable you to build enough evidence to become attractive to institutional investors in the next round.

In the past year, I have had countless conversations with pre-seed and seed-stage founders who have been struggling to find capital to get their idea off the ground.

In fact, I was one of them.

I’ve been building and scaling multiple startups for over 28 years now and I’m still learning through this new startup evolution in real time. I try to be as objective as possible and tell everyone the same thing: The pre-seed stage isn’t ending because venture capital is disappearing. It’s ending because the work that pre-seed capital once paid for has become dramatically less expensive.

AI hasn’t killed pre-seed. It has simply moved the goalposts between experimentation and validation.

If you are a founder who was in the middle of a build pre-AI, this may have been the reason you had to pivot or perhaps why your startup became stagnant or had to shut down.

The founders who recognize that shift earliest won’t spend months refining a pitch deck. They will spend those months building evidence that makes the pitch almost bulletproof and undeniable.

https://carta.com/uk/en/data/state-of-private-markets-q1-2025/