Why AI Startups will FAIL to Raise PRE-SEED / SEED in 2026 (What to Do)
Key Takeaways
- The current AI investment landscape is saturated with "better" versions of existing products (e.g., AI to-do lists, HR tools, generative AI clones, chatbots), making it hard to secure pre-seed/seed funding.
- True innovation for funding now lies in being "different" rather than just "better," offering solutions that fundamentally change how things are done.
- Founders should target "blue ocean" opportunities, focusing on underserved, underrepresented, and underestimated sub-niches where competition is minimal.
- Success is shifting from "riches in the niches" to "riches in the reaches," emphasizing distribution and unique approaches as development becomes easier.
- Avoid building foundational LLMs or general industry-based LLMs as these are red oceans with well-funded incumbents; focus on specialized applications.
- Investors are prone to FOMO, often funding familiar "better" solutions, but breakthrough "different" ideas, though harder to explain, are the path to significant funding in 2026.
- The AI bubble shows signs of instability, similar to the dot-com bust, cautioning against investments in companies without clear business models or those simply cloning existing ideas.
Brief
Key Takeaways:
• The AI funding landscape is shifting dramatically; 99% of AI startups won't raise pre-seed or seed in 2026.
• The current "AI bubble" is showing signs of cooling off, similar to the dot-com bust, meaning less money is flowing into "better" AI solutions.
• To secure funding, AI startups must be truly "different" rather than just "better," focusing on novel, blue-ocean solutions.
• Success in 2026 will hinge on finding underserved niches and prioritizing distribution, as development becomes easier and markets more fragmented.
So, you’re thinking about diving into the AI startup scene or maybe you're already there, trying to nail that next funding round. Here's a raw take on what's coming in 2026: most AI companies, and I mean 99% of them, are going to struggle to raise pre-seed or seed funding. Even those who got some cash in 2025? They’ll likely hit a wall for their seed rounds. It's not a scare tactic; it’s a reality check based on the current market dynamics. We're at a critical inflection point where the "AI bubble" is visibly losing steam. Billions have been poured into AI, creating a frothiness that resembles the dot-com boom of the early 2000s, and we all know how that ended for many. Investors are getting jittery, seeing rapid depreciation and business models that lack real revenue, making the path ahead tricky for undifferentiated solutions.
The core problem, as it often is, comes down to both founders and investors. Many founders are simply “AI-washing” their ideas, building something "better" than what exists, but not truly "different." Imagine another social media platform that’s just a bit better than Facebook, or a to-do list app that promises to be superior to Notion. These are incremental improvements, not groundbreaking shifts. Meanwhile, investors have been pumping money into these "better" ideas, encouraging more of the same. But here’s the kicker: the money for these "better" solutions is largely spoken for, and the market is saturated. If you're building another generative AI art tool that's just "better" than Midjourney, or a chatbot that’s marginally more efficient, you're competing in a red ocean already dominated by well-funded giants.
So, what’s the play? Stop trying to be "better" and start being "different." This means thinking beyond the obvious, finding those underserved, underrepresented, and underestimated sub-niches, and building something genuinely novel. Sam Altman himself noted that future success lies in building on top of foundational models, perhaps for specific industries, but the real blue ocean opportunities are in entirely new categories or solutions to problems people didn't even know they had. For example, instead of a "better" HR system, how about a completely new hiring process devoid of traditional interviews? Or a completely new way to monetize the creator economy, not just better tools. With development getting easier thanks to advanced LLMs and tools, distribution becomes critical. Being truly different automatically gives you reach in a less crowded space, attracting early adopters and setting you up as an acquisition target for those larger, consolidating companies. Find your blue ocean, and you’ll find your funding.