Our sect of marketers recently analyzed a fascinating pattern that emerged from dozens of investor meetings throughout 2025. What we discovered isn't just concerning—it's absurd enough to make you question whether the entire early-stage investment ecosystem has completely lost the plot.
Here's the paradox that's breaking the startup funding model: investors claim they do seed-stage investing, but they demand metrics that prove you don't actually need their money.
The Theater of Seed Investing
Picture this scenario, repeated across conferences in San Francisco, London, Berlin, and Singapore throughout 2025:
A founder presents their martech startup. They have an MVP. A strong technical team. Early test users showing promising engagement. They're raising a seed round—anywhere from $400K to $3M—to accelerate product development, expand the team, and start serious customer acquisition.
The investor nods thoughtfully. Reviews the deck. Asks smart questions. Then delivers the verdict: "This is really interesting. We love the space. Love the team. But we'd like to see more traction. Come back when you're doing $5M in annual revenue."
$5 million in annual revenue.
For a seed round.
Let that sink in for a moment.
The Math That Exposes the Absurdity
Let's run the numbers on what investors are actually asking for, using a typical high-margin SaaS or martech business as an example.
You're seeking seed funding: $400K-$3M to build and scale. The investor says "come back at $5M revenue." So you bootstrap your way there. Let's say it takes you 18-24 months of grinding, scraping, and somehow surviving without that capital you originally needed.
You hit $5M in annual revenue. Your margins, because you've been forced to stay lean and efficient, are 70-80%. That means your actual profit is $3.5M-$4M per year.
Now that same investor is ready to write you a check for $3M-$5M.
But here's the punchline: you don't need it anymore.
With $4M in annual profit, you can:
- Hire the team you need
- Invest in product development
- Fund customer acquisition
- Expand to new markets
- Do literally everything you were going to do with investment capital
The investor arrives at the party after you've already bought the champagne, drunk it, and cleaned up.
The Definition Crisis
Something has gone catastrophically wrong with how we define funding stages. Let's recap what these terms are supposed to mean:
Pre-seed: You have an idea, maybe a prototype, possibly some early validation. You need capital to build an MVP and test product-market fit.
Seed: You have an MVP, a small team, maybe some early users or customers. You need capital to refine the product and prove you can acquire customers efficiently.
Series A: You have product-market fit, proven unit economics, meaningful revenue. You need capital to scale what's already working.
But somewhere in 2024-2025, these definitions got scrambled. Investors started slapping "seed investor" on their websites while operating with Series A criteria. They want seed-stage valuations with Series A metrics. They want the upside of early risk without, you know, the actual risk.
The result? A funding stage that exists in name only.
The Investor Logic Pretzel
Let's examine the reasoning these investors offer, because it gets more absurd the more you look at it:
Investor: "We invest in seed-stage companies."
Founder: "Great! We're seed stage. MVP, team, early traction."
Investor: "Yes, but we need to see $5M in revenue first."
Founder: "If we could get to $5M in revenue without capital, we wouldn't be raising a seed round."
Investor: "Exactly! That's how we know you're a strong team."
Founder: "But if we can get there without you, why would we give you equity when we arrive?"
Investor: "..."
This isn't due diligence. This is a system that's eating itself.
The Real Casualties
This broken model doesn't just waste founders' time—it fundamentally damages the innovation ecosystem.
The capital-efficient get punished. If you're building an AI-native platform or martech tool with high margins and low overhead, you're precisely the kind of company that could reach significant revenue without outside capital. But that's also why you're seeking investment—to get there faster, bigger, and with better positioning. The investor's logic punishes efficiency by saying "prove you don't need us, then we'll invest."
The truly innovative get filtered out. The companies that could benefit most from seed capital—those building something genuinely new that requires time to find product-market fit—can't show $5M in revenue because they're still figuring out the market. But that's exactly when seed capital is supposed to help.
The well-connected get funded. When metrics matter less than traction, and traction is impossible without capital, who gets funded? The founder whose uncle knows a VC. The Stanford grad with the right accelerator connections. The entrepreneur on their third startup who already has investor relationships. Not necessarily the best ideas or strongest teams.
The AI/Martech Irony
This problem is particularly acute in AI and martech—supposedly the hottest investment sectors of 2025.
Throughout the year, we observed investor after investor claiming they're "focused on AI" or "bullish on martech." They set up dedicated funds. They host demo days. They publish thought leadership about the massive opportunity in these spaces.
Then a founder shows up with an AI-native martech platform—literally combining both "hot" categories—and gets told to come back at $5M revenue.
The disconnect is staggering. If you genuinely believe AI is transforming marketing technology, you should be eager to invest in strong teams building in that space before they've reached massive scale. That's the entire point of venture capital—to fund potential, not just proven results.
Instead, these investors want the PR benefits of being "AI investors" without the actual risk of investing in AI companies at the stage when investment matters.
What This Means for Founders in 2026
If you're a founder considering fundraising in 2026, here's the uncomfortable truth: you probably shouldn't.
Not because building a startup is impossible without investment. Not because your idea isn't worth pursuing. But because the seed-stage investment market has become so dysfunctional that it's not actually serving its intended purpose.
The bootstrap reality: If investors want $5M in revenue before they'll invest $2M, your path is clear—get to $5M without them. Will it be harder? Yes. Will it take longer? Probably. But you'll own your company, make your own decisions, and by the time you have options, you won't need their money anyway.
The alternative capital route: Revenue-based financing, venture debt, strategic partnerships, and grants are all looking increasingly attractive compared to the traditional VC path. These options align incentives better—you pay back what you borrow, or you give up some revenue share, but you don't sacrifice enormous equity for capital you might not need.
The strategic raise: If you do pursue VC, be ruthlessly strategic. Only approach investors who have recently funded companies at your actual stage, not the stage they claim to fund. Check their portfolio—if every "seed" investment was a company already doing $2M+ in revenue, they're not a seed investor no matter what their website says.
What This Means for Investors
And if you're an investor reading this—which statistically, some of you are—it's time for some honest self-reflection.
Stop lying about your stage focus. If you only invest in companies with significant revenue, you're a Series A investor. Call yourself that. Update your website. Stop wasting founders' time by pretending to do seed deals.
Recognize what you're missing. Every founder who bootstraps to $5M revenue without you is a company you could have owned 15-20% of for $1-2M. Instead, you'll get maybe 8-10% for $5M once they don't really need you. Your risk-aversion is costing you returns.
Understand the market shift. The most capital-efficient companies—the ones with 70-80% margins, AI-native infrastructure, and asset-light models—are exactly the ones that can bootstrap successfully. These are also the companies with the highest potential returns. By waiting until they prove they don't need you, you're selecting for companies that can't bootstrap, which often means worse unit economics.
Question your own value add. If you're only willing to invest after a company has already figured out product-market fit, customer acquisition, and efficient operations, what exactly are you bringing to the table besides capital? And if it's just capital, why should they give you equity instead of taking venture debt?
The Broader Ecosystem Reckoning
What we're witnessing isn't just a temporary market condition or a few overly cautious investors. This is a fundamental breakdown in how early-stage startup funding is supposed to work.
Venture capital was invented to fund companies that couldn't access traditional financing because they didn't have assets, revenue, or proven business models. The entire premise was accepting high risk in exchange for high potential returns.
But modern seed investors increasingly want assets (in the form of product), revenue (substantial amounts of it), and proven business models (customer acquisition that works at scale). They want Series A companies at seed valuations.
This creates a missing market—actual seed-stage companies that need $500K-$3M to get from MVP to scalable traction have nowhere to go. Angels can't write big enough checks. Series A investors want more traction. And "seed" investors want them to somehow bootstrap to Series A metrics.
The result is a generation of founders who simply opt out of the fundraising game entirely, building slower and more carefully, but owning everything when they get there.
The 2026 Founder's Choice
So do startups need investments in 2026?
The honest answer: probably not from the investors who claim to serve them.
If you can reach $5M in revenue without capital—and in high-margin sectors like martech, SaaS, or AI-native platforms, many teams can—then you should. The investor who shows up at $5M with a term sheet is admitting they're not actually useful at the stage when you needed them.
If you can't bootstrap to scale, you face a harder choice: either find the rare investor who actually invests at your stage (they exist, but they're buried under hundreds who claim to but don't), or build relationships early and plan for a longer timeline to raise when you have the metrics they actually want.
The irony is that investors' risk aversion is creating the exact outcome they fear—founders succeeding without them. Every founder who bootstraps to profitability is a percentage of ownership that VC missed. Every company that reaches scale independently is a return that won't appear in any fund's portfolio.
The Final Word
Throughout 2025, we watched this pattern repeat itself across continents, sectors, and company stages. Investors claiming to be seed-focused while demanding post-seed metrics. Founders building genuinely innovative products in "hot" sectors getting passed over for lacking traction they can't generate without capital. A funding ecosystem that has forgotten its own purpose.
Perhaps this is natural selection in action. Perhaps the investors who maintain unrealistic criteria will simply miss the best companies, while the ones willing to actually invest at the seed stage will capture outsized returns. Perhaps founders are better off without investors who would rather show up late to a proven success than early to a promising beginning.
But let's stop pretending the seed round exists in any meaningful way. What we have instead is Series A investing cosplaying as seed funding, leaving actual seed-stage companies to fend for themselves.
The question isn't whether startups need investments in 2026. The question is whether investors in 2026 are capable of providing the type of investment that startups actually need.
Based on 2025's evidence, the answer appears to be no.
To the founders building great products in 2026: if you can bootstrap to profitability, do it. To the investors reading this: if you want seed-stage returns, you'll need to actually invest at the seed stage. The companies that don't need you won't give you the terms you want. And the ones that do need you are currently being told to come back when they don't.