Silicon Valley is witnessing a shift in how AI startups approach funding. While artificial intelligence has long been viewed as a productivity booster, it is now also seen as a pathway to building high-revenue companies with minimal headcount.
There is growing evidence of AI startups reaching tens of millions in revenue with as few as 20 employees. This reduced overhead is prompting some founders to take less venture capital (VC) funding, particularly at the earliest stages.
Terrence Rohan, an investor at Otherwise Fund, describes a new mindset among startup founders. He highlighted a conversation with a founder who compared raising VC to using oxygen while climbing Mount Everest: “I want to summit Everest and use as little oxygen (VC) as possible.”
Notably, this founder wasn’t driven by a lack of investor interest—his funding round was oversubscribed, meaning more investors wanted in than there was room for. Reddit co-founder Alexis Ohanian praised the approach, calling the founder “smart.”
Reducing reliance on VC allows founders to retain greater ownership of their companies, giving them more control over future growth and exit opportunities. Y Combinator (YC) startups increasingly reject excessive funding offers, signaling a shift in mindset.
However, not everyone agrees. Parker Conrad, CEO of Rippling, argues that capital is essential for scaling. “A competitor will raise a ton of financing, invest more deeply in R&D, build a better product, and crush this guy with sales and marketing,” he warned.
Rohan believes otherwise. He notes that companies are now achieving significant revenue with fewer employees and suggests they may be able to sustain that model over time.
AI Startups Still Raising Big Rounds
Despite this shift, many fast-growing AI companies continue to raise massive funding rounds:
- Anysphere, which develops the AI coding assistant Cursor, reportedly hit $100 million in ARR with only 20 employees. The company is now seeking funding at a $10 billion valuation.
- ElevenLabs, an AI voice-cloning startup, reached a similar revenue level with 50 employees and secured a $180 million Series C at a $3.3 billion valuation.
However, as these startups scale, they are still hiring aggressively. Anysphere’s headcount has since grown to 90 people, while ElevenLabs has expanded to 200 employees, per PitchBook data.
Rohan acknowledges that while some AI startups are raising large rounds, many are doing so with low dilution, meaning founders maintain substantial ownership. He also notes that founders today are more cautious about VC than in previous years.
The lessons from overinflated valuations in 2020 and 2021—many of which led to down rounds—are still fresh in founders’ minds. As a result, some YC founders no longer see raising capital from elite VC firms like Sequoia or Benchmark as their ultimate goal.
“It’s just a different tone now,” Rohan said. “The conversation has shifted.”
As AI continues to reshape startup economics, the battle between lean operations and deep funding pools is only just beginning.
