But fundamental tensions between investors and founders - exacerbated by the scale and pace of the AI industry - will still need to be navigated in order to secure funding. Joshua Lloyd-Lyons, Vice President at Fidelity International Strategic Ventures delivered a talk at AI Summit London to help the audience to understand what these tensions are, and how to address them.

47% of total US funding was poured into AI companies last year, as the US led the way in AI development. These numbers ostensibly indicate that there is significant investment being put into AI startups, but the situation for founders on the ground is complicated, said Lloyd-Lyons.

“[The] capital is there, but it isn’t always evenly distributed,” he explained.

For instance, of the 60 billion capital raised in Q1 2025, 40 billion was made up by OpenAI’s funding round - the largest funding round raised by a private company, Lloyd-Lyons said.

In another example demonstrating how the numbers can be deceptive, 62 billion was invested in AI startups in 2024, but only 14 billion was done at the early stage. Therefore, there are a number of “hot” AI startups who are raising funds that the media reports on, but there is also a larger group who are coming under pressure.

Lloyd-Lyons added that there have also been controversies surrounding AI - such as Apple critiquing thought chain models and the “illusion” of thinking, and concerns around the energy needed to power AI computation.

This context is important, because it raises questions about the AI industry and investors, above all else, seek certainty.

“Where they can’t get it, they’re more likely to hesitate, or they’re more likely to increase the cost of that capital,” added Lloyd-Lyons.

Misunderstandings between investors and founders

The misunderstandings and tensions that arise between investors and founders can be chalked up to the incentives that investors are acting on. They don’t want to invest in a startup that will fail, not because it will result in a loss of investment, but because it will affect the reputation of their career.

However, investors are also loath to miss out on an AI startup that takes off.

“While these are more broadly true, I think within AI, this dynamic is often amplified due to … greater depths of uncertainty and the remarkable … speeds of scaling that we’re seeing across early-stage companies,” said Lloyd-Lyons.

There are three areas that come up again and again as points of contention between investors and founders, also based on the discussions Fidelity has; firstly, investors are fearful and concerned about AI washing; secondly, they are concerned about the defensibility of the proposition; and thirdly, there are debates over proof points - in terms of what should be measured and how it should be measured.

AI washing relates to the fears investors have of backing companies that go on to fail. This is coupled with a number of companies rebranding as AI companies to attract funding, which “muddies the waters”.

As a result, it’s hugely important for founders to clearly and concisely explain what their product does and the way in which AI is integral to it.

Regarding the defensibility of the proposition, a small minority of startups are guilty of stretching the truth and misleading investors who are excited and don’t conduct due diligence. 

A recent and “egregious” example of this came in the form of Builder AI, which collapsed and filed for bankruptcy, following allegations that human-written code was being passed off by AI-generated code and investors were purposefully misled. It achieved a valuation of more than $1 billion.

“My suspicion is that we will see more of this play out given the lack of diligence and good sense that’s gone into some investment decision making,” said Lloyd-Lyons.

How to bridge the divide 

There are actionable things founders can do to bridge the divide between investor perceptions and the reality that founders are facing. This includes founders demonstrating the defensibility of a proposition so that investors understand it well, and explaining their tech in clear, simple terms.

One key area where investors are perceiving defensibility is around proprietary data assets - the more data a product generates, the better.

It’s also important to acknowledge that there are different hurdles at different stages, Lloyds-Lyons said.

“Raising from early stage investors is a very, very different experience to raising late stage investors,” he explained, noting that there is a difference between showing you’ve built a product that people want to use, versus showing that you are able to distribute this product to a large number of people at scale.

Lloyds-Lyon identified three strategies that could help with raising funding: number one, building relationships ahead of time is crucial, and enables investors to move more quickly and engage with your business; cultivating the fear of missing out and building momentum; and finally, having a concentrated investor interest around the time that you have momentum will put you in good stead to raise money.

“VCs are fundamentally momentum investors. They tend towards consensus,” said Lloyd-Lyons. “Time and uncertainty kills deals, while competitive tension generally delivers better pricing for you.”

Creating these relationships, engaging with investors, and being able to concisely explain what your AI-powered product does are actionable insights founders can take forward and employ as strategies to help them navigate an increasingly complex and fast-paced industry.

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