After years of heavy funding into artificial intelligence, venture capital firms are becoming more selective about where they deploy capital in AI-driven SaaS startups. While billions have flowed into the sector, simply adding “AI” to a company’s branding is no longer enough to attract investor interest. Conversations with venture capitalists reveal a clear shift in what is considered fundable in today’s market.
According to Aaron Holiday, managing partner at 645 Ventures, investors are now backing AI-native infrastructure, vertical SaaS built on proprietary data, systems of action that help users complete tasks and platforms deeply embedded in mission-critical workflows. However, startups offering thin workflow layers, generic horizontal tools, light product management features, or surface-level analytics are losing favor. These are tasks that AI agents can already handle efficiently. Abdul Abdirahman of F Prime said generic vertical software “without proprietary data moats” is also falling out of favor, while Igor Ryabenky of AltaIR Capital noted that investors are avoiding products lacking depth. “If your differentiation lives mostly in UI and automation, that’s no longer enough,” he said. “The barrier to entry has dropped, which makes building a real moat much harder.”
Ryabenky added that new startups must focus on “real workflow ownership and a clear understanding of the problem from day one.” He stressed that speed, adaptability and flexible pricing models such as consumption-based plans are becoming more relevant than rigid per-seat pricing. Jake Saper of Emergence Capital pointed to the contrast between Cursor and Claude Code as the “canary in the coal mine.” “One owns the developer’s workflow, the other just executes the task,” he said, adding that “Developers are increasingly choosing the execution over process.” He warned that products relying on “workflow stickiness” may struggle as AI agents take over tasks. “Pre-Claude, getting humans to do their jobs inside your software was a powerful moat, but if agents are doing the work, who cares about human workflow?” he said.
Integrations are also losing their edge, especially as Anthropic’s model context protocol simplifies connecting AI models to external systems. “Being the connector used to be a moat,” Saper said. “Soon, it’ll be a utility.” Ryabenky noted that easily replicated tools such as generic productivity apps, project management software, basic CRM clones, and thin AI wrappers are facing funding challenges. “Investors are reallocating capital toward businesses that own workflows, data and domain expertise,” he said. “And away from products that can be copied without much effort.”
Also read: Viksit Workforce for a Viksit Bharat
Do Follow: The Mainstream LinkedIn | The Mainstream Facebook | The Mainstream Youtube | The Mainstream Twitter
About us:
The Mainstream is a premier platform delivering the latest updates and informed perspectives across the technology business and cyber landscape. Built on research-driven, thought leadership and original intellectual property, The Mainstream also curates summits & conferences that convene decision makers to explore how technology reshapes industries and leadership. With a growing presence in India and globally across the Middle East, Africa, ASEAN, the USA, the UK and Australia, The Mainstream carries a vision to bring the latest happenings and insights to 8.2 billion people and to place technology at the centre of conversation for leaders navigating the future.
