AI-Powered Startups: How the Game Has Changed

May 2025

Jon Maroney

In 2004, I co-founded a company to build a mobile phone platform. I remember the rush of excitement when we received our first outside investment: a $25,000 check. I proudly showed it to my technical co-founder, who asked if he could see it. He looked at it, nodded, and slid it into his pocket.

“What are you doing?!” I asked, startled.

“We need to buy a server,” he said. “That’s just to make this thing work. You will need to go get another $25k to pay the datacenter provider for the year.”

Back then, every dollar of capital had to stretch across custom infrastructure, scarce engineering talent, and long dev cycles. But not long after, Amazon Web Services arrived—and it was a step change in startup velocity. That same $25K could buy you AWS cloud hosting for 2-3 years. Infrastructure costs plummeted - and startup velocities soared.

Today, we’re in the midst of another revolution. Generative AI, modern development platforms and automated go-to-market tooling have fundamentally changed how application software companies are built—and how fast they can scale.

The AI Step Change

Artificial intelligence is the new AWS. It’s a foundational shift, not a feature. The result? Building software is now faster and cheaper than ever.

But this shift comes with a paradox: software itself is no longer a durable competitive advantage. Features can be replicated overnight. That clever tool you spent three months perfecting? Ten others are launching it next week. The barrier to entry has collapsed—and competition has exploded.

We’re seeing a 10x increase in startup density across categories. Every pain point is being attacked from all angles by AI-native teams. When it comes to application software (the SaaS apps that have dominated the startup world for the last 10 years) the idea of moats built primarily on features or technical complexity is over.

Incumbents Will Move Slowly but With Advantage

Of course, market leaders aren’t standing still. Big players are integrating AI into their offerings. But their advantage—scale and reach—is also their constraint. They already have the distribution and customer relationships which are key to success, but they also have to ensure that their new AI features work on their entire platform.

Enterprise-focused companies must prioritize reliability, security, compliance, and brand trust. That means deliberate rollouts and slower iteration cycles. This creates a window—however brief—for new entrants to outmaneuver them on speed, product freshness, and user delight.

What VCs Are Looking for Now

As investors, we used to ask: “Who’s your technical co-founder?” That 10x engineer who could make or break a company by building faster and smarter than the competition.

Now, we ask two new questions:

• What makes your product leader one of the best in the world?

• What’s your unfair advantage when it comes to distribution?

Product and go-to-market have replaced raw technical execution as the pillars of startup success. In today’s world, building a product is the starting point, not the moat.

Why Startups Are Getting Farther, Faster

This new landscape favors the fast and focused. Here’s why:

• Speed to MVP is dramatically faster thanks to AI-assisted coding, off-the-shelf infrastructure, and no-code/low-code tools.

• Customer feedback loops are tighter, enabling near-real-time iteration.

• Infrastructure is no longer a slog. User authentication, payments, analytics, and even data privacy are all turnkey.

Startups today can do in weeks what used to take teams months or years.

So, You Want to Build an AI Startup?

If you want to win in this era, here’s what you need:

• Build an incredible product. Not just functional—delightful. A product that understands, evolves, and resonates with customers. Make it indistinguishable from magic.

• Develop an unfair distribution strategy. Without one, you’re just one of 25 startups solving the same problem with the same model and the same tools.

• Learn faster than anyone else. Test. Ship. Fail. Adjust. The loop is your friend.

This is the best time in history to start a software company. But it’s also the most competitive.

AI has rewritten the rules. The winners will be those who understand that in a world where building is easy, differentiating is everything.