Analysis
Maor Farid, founder and CEO of Leo AI, put a sentence in Crunchbase News this week that should be taped above every AI founder's fundraising deck: "In 2021, putting AI on a slide could get you funded... Retention fell off a cliff." That's not a nostalgic complaint about looser money -- it's a description of a funding market that has fully repriced what 'traction' means, and most founders still pitching growth-at-all-costs haven't caught up.
We think Farid is right, and the evidence is everywhere once you look for it: Q3 2026 funding data out this week shows AI still absorbing roughly two-thirds of every venture dollar, but increasingly concentrated in a shrinking set of names with real retention and gross margin to show for it, not a broader base of AI-adjacent companies raising on narrative alone. A $1 million ARR milestone that would have unlocked a Series A in 2021 is now, as Farid notes, not even a meaningful signal -- investors want net revenue retention, expansion within existing accounts, and proof that a product is solving a problem customers can't walk away from, not just one they tried once.
“For founders raising right now, the practical takeaway is to lead a fundraising conversation with retention and expansion data, not total users or logos.”
Farid's own build process is the tell: Leo AI interviewed more than 900 mechanical engineers before shipping a product, a depth of customer discovery that most AI startups skip entirely in the race to demo something with a chatbot interface attached. "There were never easy AI wins, even if there was easy money going around," he says -- and that distinction between capital availability and product-market fit is exactly what separates the AI companies compounding durably from the ones that raised a 2021 round and are now quietly struggling to raise a bridge.
Room for disagreement: Farid runs a company that benefits from exactly this narrative -- a founder who spent a year doing deep customer discovery has every incentive to argue that deep customer discovery is now what wins, and plenty of fast-moving AI companies with thinner diligence have still raised nine-figure rounds this year on growth alone. The bar may be rising fastest for mid-market and enterprise AI tools closer to Leo AI's own category, while consumer and infrastructure AI plays with viral growth curves are still getting funded on momentum rather than retention math.
For founders raising right now, the practical takeaway is to lead a fundraising conversation with retention and expansion data, not total users or logos. Farid's "grow fast and steady for five years" framing over "spectacularly for five quarters" is the pitch that gets through to GPs who've already watched a few 2021 darlings go to zero.