The CTO Playbook 68: Startups, AI, and the Funding Reset: What Investors Really Want in 2025
Nov 4, 2025
In this discussion, Thorgeir Einarsson, founder of Pitchago, delves into the shifting landscape of startup funding and AI. He highlights that traction is now more crucial than ever as investors prefer application-layer AI over generic models. Hardware is seeing a resurgence, especially in defense and medical sectors. Thorgeir emphasizes the importance of pre-diligence to prepare founders for real investor scrutiny and warns about the overlooked area of AI safety. He offers valuable insights on maintaining strong co-founder relationships and the need for startups to truly understand their customers.
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AI Funding Now Rewards Traction
- AI funding shifted from hype to requiring real traction and problem-solving instead of pure model-building.
- Pre-seed and seed rounds are brutal; teams must show customers or measurable signals before investors write checks.
VCs Back AI Applications Over Generic Models
- VCs are placing smaller option-like bets at the AI application layer rather than on generic foundational models.
- Investors prefer verticalized, specialized SaaS applications where they can foresee defensible wins.
Hardware's Value Is Vertical Integration
- Hardware regained attention where tight hardware-software integration creates real defensibility and domain advantage.
- Defense and medical devices are attractive because firmware-close-to-metal advantages are hard to replicate.
