TBC: The State of the Fundraising Market in 2025

By Jason Yeh
March 20, 2025
8
min
Listen on Apple Podcasts

TBC: The State of the Fundraising Market in 2025

Is pre-seed fundraising harder than ever? In this episode of The Backchannel, we break down how expectations for early-stage startups have shifted. Investors now demand more proof—traction, paying customers, and even product builds—before writing checks. Why? A mix of AI-driven productivity, global talent access, and the lingering effects of the post-ZIRP investment climate. If you’re a founder navigating this new reality, this episode will help you understand what it takes to stand out. Learn how to adapt, leverage AI tools, and make progress without investor capital. Tune in to stay ahead of the curve.

Is pre-seed fundraising harder than ever? In this episode of The Backchannel, we break down how expectations for early-stage startups have shifted. Investors now demand more proof—traction, paying customers, and even product builds—before writing checks. Why? A mix of AI-driven productivity, global talent access, and the lingering effects of the post-ZIRP investment climate. If you’re a founder navigating this new reality, this episode will help you understand what it takes to stand out. Learn how to adapt, leverage AI tools, and make progress without investor capital. Tune in to stay ahead of the curve.

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Episode Transcript

​[00:00:00]

Hey there. Welcome to another episode of the Back Channel. In today's episode, I want to comment a little bit on the types of questions that I've been getting about how the market has changed, how fundraising has changed, what expectations are like from institutional investors nowadays, and, and you know, what the evolution of the VC and fundraising market has been over the last five years, three years, two years, six months.

And I think it's a, it's a really important thing to talk through because it impacts the way founders build initially when founders think about raising capitaland also some of the skills that every builder needs to start honing today.

So where should I start? I. Well first talk about this transition into covid and some of the things that I saw happen. Um, well, one of the things was that we went to [00:01:00] a remote world. I. Okay. We went to a world where no one was allowed to go outside of their house, let alone and do a crowded office, which put everyone into the situation of working remotely, learning how to work remotely, being comfortable working remotely, and also starting to build the skills of managing a remote workforce.

So that's one input that I think has had a big impact on where we are today. Now I'm not even gonna talk about the return to office or what it means to be hybrid or fully remote versus fully in, in person. Not even something that, um, is going to go into this bit of commentary. I just wanna give you that initial starting point.

That's one. And the second thing has been the explosion of AI more as a tool for productivity than anything else. So what do those two things combined mean for the current state of fundraising and expectations from the VC world? [00:02:00] Well, I believe if you think about those things combined with the whiplash from the crazy Zer era of, of investors.

Jumping ahead of the line, investing in random ideas without any traction to pendulum, swinging backwards to being very scared about investing. Well, that combined with now actual access to crazy productivity tools with AI Chat, GBT, AI based coding, et cetera. And the comfort level of working remotely and accessing talent all over the world where, um, things might be 30% less, 50% less, 80% less when it comes to talent.

All the, all those things combined has meant the earliest stages of investors now expect much more to be done before they're willing to take a bet. Now, of course there are always outliers. There's still hot deals. There are still hot teams where investors will [00:03:00] take a risk and kind of jump the line so that they can be part of an amazing deal.

But for the vast majority of first time founders and other people who are just trying to get out there, the expectation of pre-seed investors the first institutional round is so much higher because they believe that so much more can be done. With so much less capital. So before, I always thought of pre-seed rounds as well if you were able to validate that the problem exists.

Then you're ready to raise a pre-seed round back in the day. Validating the problem exists. Could have been. I don't know. I used to work in the industry, so I'm gonna tell you that the problem existed. Um, if you wanted to go a little bit further, maybe I was reaching out to some potential customers in interviews.

Maybe I had a, uh, landing page that people were jumping into. I had a really beautifully designed deck that told the story of the problem. All those things counted for [00:04:00] validating a problem existed

​[00:05:00]

today, I feel like that's not the case in most industries or for most VCs. Now validating the problem is like get a product out there and sell it.

Like you gotta show us at least one person or a couple people have been able to buy. You can't give me the excuse anymore that, oh my God, I need to raise money to build the product in order to sell it to people. Because especially if it's a software based product, you should be able to figure that out.

You should be able [00:06:00] to be gritty enough and resourceful enough to learn how to do a little bit of AI based coding to maybe take some of your savings and hire someone overseas to help build you initial products so that you can get out there and sell. And by the way, there are all these tools, AI driven tools that can help you sell as well.

So people have very little excuse, at least in the eyes of the venture capitalists to come to them without some bit of traction, some more tangible. Uh, evidence that you validated the problem. Now, I will say that this perspective on what the earliest stage founders need to have before they raise capital is somewhat unfair because I feel like it's being applied to all industries.

So, uh, I feel like this lack of risk capital is. Bleeding from pure software over to things like, uh, CPG and sort of hardware and physical goods that do need initial capital to get it out there. also deeper tech [00:07:00] stuff and biotech stuff, which need early stage capital to invest in science. I think they are being impacted by this pullback in this feeling like, oh, I only wanna invest in stuff that has much more traction.

Hopefully that corrects. I, I do wish there was more risk capital out there and people start funding ideas and funding great people to just see where it goes. I think that's the, that's been the driver of so much innovation, but for now it's February, 2025. That's what I'm seeing in the market today.

That's the expectations that I think you all need to be working within, and to be honest, learning those AI skills, learning those AI building skills, not. Pushing your head into the sand and thinking that Google is going to be the only tool that you need to know how to do, and that you can just be a manager and not learn how to build at the earliest stages.

I think that's going to be a big mistake if you want to keep operating that way. So take this as encouragement to learn a little bit more about what you can do using [00:08:00] AI tools. Learning about what it takes to manage teams abroad, or at least individuals to help you get to the next stage and actually create progress without investor capital, right?

I hope this walkthrough of where I believe the markets are will help you and your plan to potentially raise capital, but certainly build the first versions of your product and be in a better position where you could raise capital or maybe you don't have to. All right, so I will see you on another episode of the back channel.

Until then, peace.

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