Venture capital investment rose to a 10-quarter high 108.3 billion euros in the first quarter of 2025, driven by artificial intelligence, which represented more than €44.6 billion raised.
In recent years, AI has felt like a money-printing machine. Investors, eager not to miss out on the next big thing, were quick to back almost any startup that mentioned AI in its presentation. The idea didn’t need to be particularly well implemented or useful. In some caseseven the illusion of innovation was enough to earn a unicorn rating. But investors are now waking up to the AI wash.
As executive director of Gradient Labs (an AI customer service platform for highly regulated industries) I’ve seen investors be wary of AI washing: the practice of exaggerating a company’s use or capabilities of AI.
And it is understandable that this is so. Because for all its promise, AI carries many risks. Gartner predicts 40% of AI agent projects will be canceled by 2027, while MIT research shows 95% of pilot projects fail. Even Sam Altman, arguably the sector’s biggest beneficiary, has stressed We are in the middle of an AI bubble.
As history shows, these spikes don’t last forever. While AI remains a hot sector, overall venture capital investment fell 21% between the first and second quarters, suggesting that the days of easy capital are ending and that startups can no longer rely on buzzwords to stay afloat.
Despite the slowdown, I recently directed Gradient Labs through a one-week €11.1 million Series A. What did I learn? Instead of worrying about missing out on the gold rush, investors are now focusing on whether companies can actually deliver. They don’t want promises, but proof: demos that work, products that sell, and customers who back up lofty claims.
Being an “AI native startup” is not enough
Sprinkling industry jargon on a pitch deck may have secured a term sheet in the past. But being an “AI native startup” is no longer a differentiator.
That doesn’t mean the opportunity has passed. Most AI companies show up in the same space without any standout products or innovative vision—just founders trying to cash in on the hype. However, investors are becoming more adept at detecting AI laundering.
The advantage is that genuine innovation (products created for a clear, specific use case) shines. This is especially true when the founder and team genuinely understand the market they are trying to serve.
For my co-founders and I, it was never about creating an AI startup just because it was lucrative. We wanted to solve a problem we had experienced while working at Monzo, a leading UK fintech: highly regulated industries have been excluded from automation due to strict compliance requirements. At Gradient Labs, we created a solution to address this challenge.
It wasn’t AI for the sake of it; It was AI with a purpose, and that made a difference in the boardroom.
Products must be irreplaceable.
AI is advancing rapidly and what seems novel today could be normal tomorrow. You have to consider what makes you stand out and whether that will continue to be the case when it comes to presenting your product. What are the chances that OpenAI will solve the problem with the next version of its GPT model? If the odds are high, you are going down the wrong path.
Our approach was to focus on hiring people with great experience, designing something really different and proving that it works. We didn’t want to create an agent that provided good information 95% of the time. In highly regulated industries, even a single mistake can cause reputational damage that is impossible to recover from.
We spent 14 months obsessed with the product, not the pitch. Every detail had to be perfect before launching, and it paid off: the platform consistently outperformed human customer service agents, and customers were truly impressed.
As a result, we didn’t have to rely on flashy marketing spiels or inflated promises to get the attention of venture capitalists. They could feel the quality, see the metrics and recognize the potential that defines the category.
Start building a good relationship today
The product is paramount, but who you know makes a difference, especially when distrust is high. We laid the groundwork for months before our funding round, meeting with investors and sharing updates.
When we were ready to pitch, we weren’t just another email arriving in an inbox; We continued conversations with people who already knew us and our history. For investors, this meant they now had the opportunity to evaluate our credentials, verify our claims and speak to our customers. They knew we were legit, and when it came time to invest, they were ready to act.
Not everyone will say yes, but even the no’s are valuable. Venture capitalists are in the networking business and word is spreading. The relationships we had built and the trust we had gathered meant that many were willing to open doors for us, even if they ultimately passed up the opportunity. That network effect created its own momentum: it gave credibility, generated urgency, and signaled that what we are building deserves serious consideration.
The AI boom may be cooling, but founders have nothing to fear. There is still plenty of capital available, as long as you intend to resolve, rather than cheat.
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