IS AI HYPE SQUEEZING FUNDING FOR OTHER STARTUPS?
Roland NicholsBy Kevin Smith
AI companies captured 50% of tech startup funding last year, raking in $202 billion in new investments. Analysts at PitchBook expect this trend to continue in 2026.
That means non-AI startups may be overlooked by many investors. It also creates opportunities for startups and funders willing to zig when the rest of the tech industry zags.
THE FUNDING ENVIRONMENT FOR NON-AI STARTUPS
Tech remains a magnet for investors overall, but startups with AI features raised 83% more funding than other startups in 2025. Non-AI startups are facing several challenges:
- Limited funding: AI is pulling limited dollars and attention away from other opportunities, including valuable tech sectors like SaaS.
- The B-round gap: Even startups that previously received seed-stage or series-A investments are finding it harder to raise a second funding round. VC and private equity investors have been hesitant to follow through on early-stage investment decisions made in the pre-ChatGPT era.
- Stifled innovation: Because AI is absorbing so much capital, startup leaders have fewer resources to drive innovation in other areas. Meanwhile, investors may be less impressed by advances in healthtech, pharma, education, social benefit, and SaaS apps.
- Stuck money: Some funders have been hesitant to exit non-AI startup investments because they haven’t reached target valuations yet. Both backers and startup leaders can get stuck in a holding pattern, with limited opportunities to raise new money.
Leaders at SaaS, healthtech, and other startups shouldn’t throw in the towel — because the current funding environment also presents opportunities.
UNDERVALUED STARTUPS CREATE OPPORTUNITIES FOR INVESTORS
When it comes to investing, boring can be better. Venture capital and private equity firms that ignore non-AI tech companies may miss opportunities to invest in structurally sound businesses with long-term potential.
With so much investor attention focused on AI, the field is also more open. Investors may face less competition or negotiate better terms. And if the AI hype begins to cool, they could see significant upside.
As concerns about a potential AI-sector correction continue to grow louder, VCs and PEs may also look to SaaS, healthtech or fintech companies to hedge against a sharp drop in AI valuations.
However, bucking the trend takes discipline. It can also be perceived as higher risk — not because the investments themselves are riskier, but because most investors prefer to move with the crowd.
HOW TECH STARTUPS CAN SECURE FUNDING IN A TOUGH MARKET
Leaders at non-AI tech startups can still attract capital — but they need a smart pitch and strong business execution. Focusing on three steps can help:
1. SOLVE REAL PROBLEMS
If your startup addresses a major problem for customers, you have the foundation of a valuable, sustainable business — even if the model doesn’t come with a lot of hype.
Smart investors are always looking for fundamentally sound companies that may be undervalued. Rock-solid fundamentals can attract the attention you need. Focus on solving your customers’ core problems — and communicate that value clearly to potential investors.
2. USE AI STRATEGICALLY
You don’t need to be an AI company to benefit from AI. If adding an AI component would make your product more valuable to customers, try it. Just make sure those tools support your core business and solve a real customer problem.
3. BUILD AN ADVISORY TEAM
A third-party advisor can help you find opportunities in the current funding market, build company value, strengthen relationships with investors and prepare for capital raises.
Advisory firms with experience in both technology and finance can offer valuable perspective to help startups navigate new territory and close deals.
HOW WIPFLI CAN HELP
We help tech startups strengthen business performance, attract investors and grow. Tell us about your goals — and we’ll help you achieve them. Start a conversation.
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