The rising bar: Why raising venture capital without AI is getting tougher

The European venture market has always had its cycles. But as we settle into Q2 2025, something has changed - structurally, not cyclically. The numbers from Q1 are stark, and for founders without an AI story, the message is becoming increasingly hard to ignore: the bar for raising capital is not only higher, it’s moving.

Let’s be clear - there is still capital out there. But if you’re building in a sector that doesn’t have “AI” in the deck, your chances of closing a round are materially lower than they were even a year ago. And the latest market data backs this up.


1. Cold front: Fewer cheques, tougher filters

We’ve now had eight consecutive quarters of deal volume decline in European venture. In Q1 2025, just 1,852 VC deals were recorded across the continent according to Pitchbook - down from 2,282 in Q4 2024. This number will tick up a little further as more deals are reported for the quarter but the trend is clear. Comparing the same quarter over recent years:

Q1 2024: 2,917 deals
Q1 2023: 3,597 deals
Q1 2022: 4,436 deals

That’s a ~49% decline in just 24 months.

This isn’t isolated to Europe. Globally, the number of deals is also shrinking, even if total capital invested appears to be holding steady. That’s a sign of consolidation, not resurgence. Investors are still writing cheques, but they’re writing fewer of them, and reserving them for companies that meet a higher bar.

Meanwhile, late-stage rounds are stalling or disappearing entirely in some sectors. The capital stack has become top-heavy: plenty of dry powder exists, but it’s sitting at the very top end of the market, while early-stage and non-AI startups struggle to access even modest Seed or Series A rounds.

This market is no longer “wait and see.” It’s “prove it - fast.”


2. The AI allocation machine

If there’s one exception to the rule, it’s AI. And not just in buzz - in actual investor behaviour.
In Q1 2025:

• Over 27% of all European VC deals were in AI - up from 22% in Q1 2024.
• AI accounted for over 28% of total European VC deal value - up from 21% in Q1 2024.
• Globally, AI startups continue to attract an outsized share of both early and late-stage capital.

Let’s put that in context. AI deals are now attracting more than 1 in 4 venture investments in Europe - a staggering shift in allocation for a single theme. This isn’t just excitement; it’s redirection. Capital isn’t being added to AI - it’s being diverted from other sectors.

This means that if you're building in climate, fintech, industrials, hardware, health, or infrastructure - and you're not weaving AI deeply into your story - you’re swimming against a current that’s getting stronger by the quarter.

This is particularly acute at early stage, where thematic conviction and market excitement can often override more traditional traction signals. Right now, AI is absorbing the bulk of that conviction.

3. Bigger rounds, fewer winners

One of the oddities in this tightening market is that median deal sizes are rising. In early-stage Europe, round sizes have increased again in Q1 2025, continuing a trend seen over the past two years.

But don’t be fooled - this is not a sign of a bullish market. It’s a sign of consolidation. Investors are placing fewer bets, but writing larger cheques when they do commit.
There are two implications here:

• Startups with real traction (or strong AI positioning) are attracting more capital than before.
• Everyone else is being filtered out before they even reach the partner meeting.

For founders, this means you now need to look like a later-stage company even at Seed. More polish. More product readiness. Clearer GTM. And some semblance of commercial interest - even pre-revenue.

The “early” in early-stage is being redefined.

4. Fundraising timelines are stretching (unless you’re in AI)

It’s not just harder to raise - it’s taking longer. For non-AI startups, the average time to close a round has increased sharply, with many founders now spending 6-9 months in market.

Investors are dragging their feet: more meetings, more internal debates, more emphasis on risk reduction. Startups are going through second and third rounds of diligence before seeing term sheets - or are asked to come back after hitting arbitrary traction thresholds.

In contrast, AI startups are raising at speed. Hot AI rounds, even at Seed, are closing in a matter of weeks. Some never formally hit the market. We’re hearing stories of investors pre-empting pre-Seed rounds with £2-3M cheques after one or two meetings - just to “get exposure.”

This widening gap in speed of capital deployment is one of the most under-discussed divides in today’s market. And it’s reshaping how founders need to plan.

For those outside of AI, runway planning now has to include prolonged fundraising cycles and more months of operating without visibility on capital. And that’s a strategic risk in itself.

5. The silent crunch for everyone else

Here’s the quieter story the data doesn’t always tell: for founders building outside AI, the experience of trying to raise capital right now is often slow, unresponsive, and frustrating.
We’re hearing this across the board:

• Response rates from VCs are down.
• “Let’s see more traction” is becoming the default response.
• Many founders report getting to second meetings only to be ghosted or asked to come back with paying customers - and demonstrating initial product/market fit even at Seed.

Founders also report needing 2-3x more investor meetings to get the same results as two years ago. The conversion rate from first meeting to term sheet has dropped sharply in most non-AI sectors.

This is compounded by a flight to brand: more founders are concentrating outreach on the top 10-15 VC funds, all of whom are swamped. That creates a traffic jam at the top and silence elsewhere. For many, this reads as disinterest - when in reality it’s just overload.

Meanwhile, the old safety net of “there’s always money for good Seed-stage companies” no longer holds. Even Seed rounds are declining in volume - especially for science-based or hardware-heavy startups. There is no guaranteed entry point anymore.

6. What this means for you

Let’s be clear: you do not need to pivot to AI just to attract funding. But you do need to take the temperature of the market seriously.

In this climate, founders building outside of AI need to:

• Sharpen their story: Investors are looking for clarity and urgency. If your narrative feels exploratory or vague, it’s a non-starter.
• Rethink what “early” means: You may need to show signs of product/market fit at Seed. This is now becoming the norm - especially for SaaS - not the exception.
• Focus your GTM: Fuzzy go-to-market plans are getting killed fast. Investors want to see a path to users, customers, and feedback - even if it’s just early signals.
• Plan for a longer raise: Build in time for fundraising - and multiple iterations. Don’t assume a term sheet after 4-6 meetings.
• Reframe expectations: Valuations are down in most sectors (except AI), and investors are seeking lower burn, higher traction, and clearer ROI paths.

And finally - if AI is genuinely relevant to what you're building, don’t be shy about stating it clearly. Many startups have latent AI potential in their data, workflow, or UX. If you’re doing something defensible with machine learning or automation, you need to say it.

But if not - resist the temptation to bolt AI onto the pitch. Investors see right through it. Instead, double down on fundamentals. Show that you’re solving a real problem, that customers care, and that your solution is the best available option.

The bar is rising. Not just for AI. For everyone.

But as always - when others retreat, great companies quietly get built.

Let's talk.