Small teams can now use AI to accomplish what previously required entire departments. This also changes the rules of the game for investors.
Fabian Westerheide is a founding partner of the AI-focused venture capital investor AI.FUND and has been privately investing in AI companies through Asgard Capital since 2014. Westerheide provides strategic advice to public and private institutions in the area of AI and invites you to the Rise of AI conference in Berlin every year.
We are currently discussing the wrong question. For months, almost every debate has revolved around the question of which jobs AI will replace. From an investor’s perspective, however, I find another development much more exciting: Why do founders actually need capital today?
I have been investing in AI startups for many years and have experienced several waves of startups, from mobile to platforms and SaaS to the current wave of AI. A lot of things are repeated. Good founders still need strong ideas, speed, customer understanding and paying customers at some point. Nothing has changed about that. What has fundamentally changed, however, is the phase before the first financing.
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The path to the first financing has become shorter
A few years ago, founders needed capital early on in order to even get started. Developers, designers, first employees, legal advice, marketing or a prototype quickly consumed large sums of money.
Today I see founders who are making significant progress with AI, no-code and modern developer tools before they even talk to investors. They develop the first prototypes, test their idea on the market, analyze competitors and in some cases even win their first customers.
Of course, this does not replace a strong team or a good strategy. But it is often enough to find out much earlier whether an idea can actually become a company.
For me, this is a real democratization of starting a business. Capital remains important, but a lack of money is increasingly rarely the real reason why good ideas never come into existence. The barriers to entry have become significantly lower.
This also changes the role of investors
With this development, the expectations of founders inevitably change.
Back in the day, pre-seed was actually pre-seed. Investors funded teams so they could even start building. Today I expect much more in many cases. A functioning prototype, first users, a clear understanding of the problem or even initial sales are now often realistic before the first round of financing begins.
Anyone who comes up with just an idea today must be able to convincingly explain why it should become a resilient company and not just a product that can be copied within a few weeks.
The market is developing in two directions
In my view, we are currently observing two developments.
On the one hand, extremely lean companies are emerging. I like to call them “atomic startups.” Small teams, sometimes with fewer than ten employees, develop products and business models that would previously have required entire departments. They work in a focused manner, make quick decisions and invest their capital where it creates real added value instead of building large structures.
From an investor’s perspective, this is no longer a disadvantage. On the contrary: Efficiency is now often more attractive than size.
On the other hand, there are companies that continue to need a lot of capital. However, for different reasons than a few years ago. It’s no longer about investing as much money as possible in marketing or copycat models. Capital is needed where real technological breakthroughs arise, such as in robotics, defense, medicine, materials science, chemistry or industrial AI.
In these areas, it is not enough to cleverly combine existing tools with one another. This is where competitive advantages arise from decades of expertise, research and technological excellence.
The opportunity lies in deep tech
Germany has good conditions for this. Our strength has never been to build the next copycat platform with as much marketing budget as possible. It lies in mechanical engineering, in industry, in science and wherever complex problems need to be solved.
When founders combine this know-how with modern AI tools, a new generation of companies emerges. Leanly organized but technologically deep. This is exactly what I see as a great opportunity for the location.
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Good founders are becoming even more important
That’s why I don’t believe that AI replaces the founder. Rather, it pushes the boundaries of what small teams can achieve today. This is precisely why good founders are becoming more important. Because if everyone can develop faster today, the speed of implementation is no longer the sole deciding factor. The key is to identify the right problems, set the right priorities and develop a resilient business model from them.
The next generation of founders will therefore start with fewer employees and will often get by with less capital at the beginning. What she needs all the more is judgment.
Maybe that’s exactly the good news: starting a business is becoming cheaper. However, it is not the technology that remains crucial, but rather the ability to identify the right problems and build successful companies from them. This is exactly why good founders are becoming more important than ever.
