The State of VC in Software and AI Startups (Category AI)
I watched another episode of The Pragmatic Engineer with great interest. Gergely Orosz spoke with Peter Walker, head of insights at Carta. Before Carta, Peter led marketing at a media-analytics startup and headed the data-visualization team at the COVID Tracking Project. They examined venture capital and its effects on startups, particularly amid the AI revolution. It was interesting to see how funding, hiring and company-building changed after the zero-interest-rate era, or ZIRP.
Their points were backed by Carta’s analytics. The company serves more than 50,000 startups and 2,500,000 securities holders, managing over $3 trillion in capital. The figures cited in the conversation put its reach at 95% of startups and 83% of US unicorns, giving it unusual access to ecosystem data.
The main topics were:
1. Venture capital’s health The market is paradoxical: total investment remains high thanks to AI megarounds at companies such as OpenAI and xAI, while the number of funded companies has fallen sharply from the 2021 peak.
2. Changes in startup hiring Startups on Carta hired 73,000 people in January 2022, 40,000 in 2023 and 32,000 in 2024. The episode’s expectation for January 2025 was around 20,000.
3. ARR per FTE as a key metric Showing growth in annual recurring revenue is no longer enough; recurring revenue per employee matters too. It measures growth alongside capital efficiency. Median ARR at Series A rose from $1.3 million in 2021 to $3 million in 2024, with the 75th percentile reaching $7 million.
4. Changing requirements for startups The funding bar has risen substantially. Annual growth of 100% once looked excellent; investors now expect 200-300%, inspired by AI companies such as Cursor.
5. AI’s effect on team structure Series A teams shrank from 20-22 employees in 2022 to roughly 15 in 2024, with a further decline to 12-13 expected by the end of 2025. The discussion connects this with productivity gains from AI tools.
6. Bridge-round risks A bridge round is what you need when, for example, you are between seed and Series A, have run out of money and ask your seed investors for more because you will not otherwise make it to the next round. The reported bridge-round success rate fell from 33% in 2020 to just 8% in 2022, sharply reducing the chances of reaching Series A for companies needing interim funding.
7. Valuation trends The median US seed-round pre-money valuation is $16 million, above even the 2021 level. But this creates a divided market: AI companies receive high valuations while non-AI startups struggle.
8. More solo founders The number of solo founders is increasing, particularly in AI, with many preferring self-funding to venture capital.
It was a substantial episode. I also learned that leading venture capitalists and founders regularly cite Peter Walker’s reports as essential reading on private-market trends, and that investors use his data for strategic decisions. I think I’ll keep following his work :)
#AI #Engineering #Management #VC #ML #Startup #Software #Leadership