The 'factory' era of VC is over: What's next?

For a decade the venture market ran like an assembly line. You hit £1 m ARR, found the right CAC‑to‑LTV ratio, and the conveyor carried you from Seed to Series A to Series B almost automatically. Then the humming stopped. In his provocative 104‑slide “WTF VC, 2025 update”, Sam Lessin of Slow Ventures writes that “AI is reorganising financial markets … SaaS is worthless … the factory line is over.” The line hasn’t merely paused; it has been dismantled. Yet founders still have to build - only now they must race rather than ride.

As other well respected investors have said, Lessin is easily one of the most forward-thinking venture capitalists writing today. We should therefore pay attention to his words. Not necessarily taking them all literally (he loves goading readers with overstatement) but seeing them as a direction of travel for the VC ecosystem. Written back in April they have now been digested (104 slides is quite an essay) and debated widely - mostly by other investors. But founders will also find that they provide a deep and insightful analysis of the changing VC psyche in the post‑boom (2021‑22) era.

For those founders stuck at Seed stage, this is especially for you!

The 'factory' model of VC

Between 2013 and 2023 cheap money, mega‑funds and copy‑paste SaaS playbooks created what Angular Ventures calls an “anomalous decade” in which follow‑on cash was nearly automatic and valuations rose on momentum rather than proof. The model rewarded predictability: monthly recurring revenue, magic‑number efficiency, a neat staircase of funding rounds. When sales slowed, more capital kept the conveyor belt moving.

Momentum was induced by the capital itself. Customers could be acquired at remarkable rates - fast enough that churn could almost be ignored. But that logic evaporated when two things happened almost at once: interest rates normalised and generative AI collapsed the cost of producing incremental software, leading to a cascade of knock-on effects.

Five forces that shut the plant

First, higher‑for‑longer interest rates drained the cheap money that once greased the conveyor belt, forcing investors to rethink risk and time‑to‑liquidity.

Second, AI eroded differentiation. Features that once bought two years of pricing power became baseline in two quarters.

Third, Lessin observed that valuations had turned more on conviction than on metrics: investors paid for the promise of boundless upside, not for last quarter’s ARR.

Fourth, capital splintered. LPs now demand exposure to ever‑narrower themes - Bio‑AI, Defence, Space‑Tech - so funds fracture to serve them, destroying the single integrated market.

Fifth, late‑stage “venture banks” with billion‑dollar funds vacuum liquidity from the middle, distorting valuations all the way back to Seed.

Jason Lemkin adds a blunt operational truth: “The era of slow SaaS evolution is dead … what worked yesterday is aging out FAST.” He says when CIOs both ring‑fence AI budgets and slash vendor counts, any company moving at pre‑2025 speed risks irrelevance.

PitchBook’s European VC First Look data for Q1 2025 echoes the shift: AI & ML captured €4.6 billion - roughly 28 per cent of disclosed deal value - while Pre‑Seed and Seed deal count fell 47 per cent year‑on‑year, from 796 rounds in Q1 2024 to just 420 in Q1 2025. (PitchBook notes the totals will rise as late‑reported deals flow in, but the directional gap is already stark.) The money is still there, but it is choosy and it is impatient.

From conveyor belt to regatta

Lessin: There are no more standardised rounds and metrics. A new 'regatta' model is replacing the VC 'factory line'. Companies don't move linearly based on metrics through VC to public....they exist at stages incrementally raising and operating til they are able to 'hop' to the next distinct capital market.

Lessin’s metaphor deserves unpicking as it provides such a powerful image: In the regatta, sailboats mill behind an invisible start line, tacking for position. To the unfamiliar eye it is a scene of confusion. Boats seem to be moving in all directions. Crews work frantically to steal the optimum line that will confer the greatest advantage at the off.

When the gun fires, the craft already moving fastest on the best wind angle surge ahead; late, slow boats never catch up.

Translated into venture:

Before the gun fires, this is Seed stage. Increasingly full of uncertainty, changes in direction, abrupt pivots. Markets are evolving faster than ever before, driven by rapid AI advances. Start‑ups jockey for market position. Some may tack for three years on angel money before crossing into a specialist Seed fund; others blast past on corporate‑venture wind in nine months.

In a regatta you chart your own course, trim your sails and hope the wind holds; no conveyor belt of financing now drags you forward if you stall.

After Seed the uncertainty persists through Series A, B and beyond. Lessin sketches a scatter of distinct capital pools: small conviction‑led Seed funds that bet on raw talent; mid‑stage funds that wait for unmistakable product‑market pull; and megafunds that underwrite the optionality of eventual “category kings". Their pacing, cheque sizes and success yardsticks differ wildly, so founders must pick the pool they are sailing toward and trim their strategy accordingly.

How Seed VCs think in 2025

For investors, where you now decide to focus is crucial. Angular’s response piece notes five distinct “swim‑lanes” are already visible and warns that moving between them is anything but automatic. They comprise: dedicated pre‑seed funds (sub‑$50M, broad spray), inception funds ($100‑250M, concentrated first‑check builders), the “new Series A” specialists ($250‑500M company‑builders with deeper pockets), the “too‑big‑but‑not‑big‑enough” tier ($500M‑$1B, squeezed between strategies), and superscale platforms (>$1B asset aggregators) - each with its own economics and expectations.

Recent conversations with specialised Seed ("inception") funds reveals excitement tempered by fear. Excitement because AI opens markets of infinite scope; fear because every deck claims the same. Lessin distils that tension into three principles investors now cite again and again:

Story, Founder, Deal (S‑F‑D) beat neat tech. An emotionally resonant narrative, a missionary team and (deal) terms that protect capital yet allow upside matter more than feature lists.

Meme‑ability counts. Lessin jokes that if the idea cannot survive as a GIF, it will drown in noise.

Survivability rules. With no conveyor to whisk companies onward, burn multiples below 1.5x and credible paths to break‑even are prized over raw growth.

As a leading SaaS investor at Seed, Lemkin again supplies the tough‑love addendum: founders that do not move two to three times faster than in 2023 will be “maimed” by AI‑first rivals. The warning signs surface early: average deal sizes contract, net revenue retention dips, and competitive win‑rates can drop by double‑digit percentages long before an incumbent is fully displaced. Seed investors have become highly sensitised to these numbers.

What founders must do now

Narrative trumps numeracy at the very start, but narrative alone will not save you. Founders need a regatta‑ready plan.

• Craft a non‑obvious AI "cherry on top" - a way large AI models bend your margin curve or user experience in your favour that rivals cannot copy overnight.

• Show pathways, not gates: which capital pool you aim for next, why it fits, and how long you can sail before refuelling if the wind shifts.

• Build defensible data loops that hyperscalers cannot replicate simply by spending.

• Combine sky‑high ambition with solid safety nets: offer a bold vision, but back it with investor‑friendly terms, lean cost structure and flexible hiring.

• Hone the one‑sentence meme that allies can spread without a slide deck.

Lemkin suggests a visceral exercise: “Refound your company. Gather your leadership and ask, ‘If we started today, what would we build?’” The question slices through legacy code bases and comfortable but obsolete go‑to‑market playbooks.

Are numbers irrelevant? - Not at all, but the scoreboard has new columns

Ask any partner reviewing an investment memo in 2025: the spreadsheet still matters. Burn multiple, runway, gross margin, and net retention remain the fastest way to size risk. What has changed is the interpretation of those figures. Every row now triggers a follow‑on question that begins, “How does AI make this better?”

• Runway - Teams that embed AI across engineering, GTM, and ops stretch cash further. VCs look for an explicit plan to halve cycle times or headcount needs by automating routine workstreams. A 12‑month runway built on manual processes is now judged fragile, no matter the headline size.
  
• Burn multiple - The old “< 1.5x” rule still applies, but investors confer a premium when founders can show declining burn per incremental feature because large‑language‑model tooling accelerates shipping speed.
  
• Gross margin - Laggards treat AI as a bolt‑on cost centre; leaders prove successive model upgrades raise margin by lowering COGS or boosting ACV. A 70 % SaaS margin that erodes with each API call no longer impresses.
  
• Revenue per employee - Once a “nice to have”, it is the new productivity tell. AI‑first companies with £200 k‑plus RPE establish a survivability moat that spreadsheet‑heavy incumbents cannot match.

Investors rank founders on a simple matrix: AI‑native & capital‑efficient sit in the top‑right; AI‑laggards with heavy burn sink bottom‑left. Where you land decides how the next partner meeting goes.

Closing - back to venture’s messy art

The lesson is simple but stark. The conveyor belt that once shuttled every SaaS start‑up along the same funding path has been dismantled. In its place lies a choppy regatta where capital pools, market winds and technological currents shift week by week. Founders who win in 2025 will:

• Treat AI as a force‑multiplier woven into product, go‑to‑market and operations - not a decorative bolt‑on.

• Pair a conviction‑laden story with runway discipline; investors will test both with equal rigour.

• Select the next capital pool deliberately and arrive under their own momentum, not just because a spreadsheet metric turned green.

• Focus on staying alive - solid cash flow and resilience - before chasing boundless upside.

The numbers still count, but how you hit them - lean, automated, compounding - now determines valuation and velocity.

Raise the sail; the starting gun is about to sound.

Let's talk.