The AI Funding Barbell

The capital markets right now look like a barbell. And if your early-stage company is sitting in the middle, you’re about to get crushed.

On one side, you have the multi-billion-dollar infrastructure rounds - the frontier models, the big names - where VCs are essentially making a high-stakes geopolitical bet.

For most of you reading this, that’s not your fight.

On the other side - the side that matters to Seed and Series A-B founders - investors are only allocating to highly specific, vertical AI applications.

VC reports from the last quarter of 2024 and early 2025 are unanimous:

VC investment in AI is accelerating, but the focus has shifted.

As Bessemer Venture Partners states, "The next decade of software is verticals and AI."

Their thesis - which major funds like a16z and Sequoia are also following - is that vertical AI companies create moats against generalized models by solving problems in regulated, messy, and data-intensive industries.

They want defensibility built not just into the model, but into the distribution and the data flywheel.

This pattern is being seen by basically every industry.

• Healthcare: VC funds have been pouring capital into startups like Ambience Healthcare and Abridge (clinical notes and documentation), solving the specific, high-cost problem of doctor-patient transcription and billing.

• Legal: Startups like Harvey (AI for legal workers) and Lexion (AI automation for contracts, recently acquired) are focused on specific, high-leverage legal workflows, not just generalized search.

• Defense & Enterprise: Large, concentrated funding is going to companies like Anduril Industries (AI-powered defense solutions) because the problem and the customer profile are hyper-specific, with massive contract value.

Venture groups are prioritizing the deep, specific, solutions providers in these industries, compared to swiss army knife types of companies trying to solve too many problems at once.

When you’re positioning the materials for your raise, I think it’s really important to drive home the idea of the specific solutions you’re providing to one group, and how that scales over time.

The diligence clock on your vertical thesis is already running.

You can spend the next six months building a scattered horizontal product, or you can spend the next 90 days engineering the hyper-focused vertical traction that guarantees leverage.

The market is demanding surgical precision; stop bringing a butter knife.

Hope this helps explain the ideas of what we’re seeing right now - have a great Thanksgiving week!

Ryan Bryden
Breakout Capital Group