Maybe $250K is enough again (post 1 of 3)

This is post 1 of 3 in a series about AI's impact on company building and the fundraising landscape.

Early-stage venture capital has gotten much bigger.

A typical seed round was ~$500K to $1M around 2010. Today it's ~$3M.

YC went from investing ~$20K in its earliest batches to $500K today. Somewhere along the way, we also invented pre-seed, which can itself mean raising $1M before the seed.

There are plenty of reasons for this. Funds got bigger, competition increased, engineers got expensive, and some startups got more ambitious.

But all that early capital was also buying something pretty basic: people.

What were we funding?

A lot of early software funding effectively bought two things:

1. Founder runway: time to take the leap.
2. Organizational capability: the people required to build.

The second part was expensive. A five-person eng team can easily cost more than $1M a year.

I've been thinking about this because I've spent the last month running a strange experiment of my own. In about four weeks, I launched eight software products from scratch. I'm not a designer or engineer. The AI and software tooling cost me just about $4,300 so far.

The much bigger cost was my own time and foregone income from the man.

Which is almost exactly the point.

AI is dramatically changing the cost of organizational capability. It isn't eliminating the cost of founder runway.

Software is getting cheaper... like, really cheap. Companies are not necessarily.

This is where aggregate AI numbers get confusing.

OpenAI, Anthropic, chips, data centers and model infra are consuming extraordinary amounts of capital. But that tells us very little about what it should cost to build the next SaaS company.

I see three different curves:

1. Frontier AI and infrastructure: capital requirements may increase.
2. Regulated and operationally complex software: building gets cheaper, but licensing, compliance, integrations and liquidity don't disappear.
3. Software-first businesses: AI can potentially reduce the teams required to build, support, sell and operate the product.

So the claim isn't that AI makes startups cheap.

AI makes software cheaper. How much that changes the company depends on what else the company requires.

What is the first $3M actually for now?

For software-first businesses, a talented founder or tiny team can increasingly build, launch, measure, kill, rebuild and try again without assembling a traditional startup organization.

They still need runway. And they still need to solve the thing AI has not made easy: distribution.

That's what makes a $250K exploration check interesting to me. Not because $250K is some magic number, but because it may be enough to give talented people time to take the leap, build multiple things and find out if anyone cares.

The interesting question isn't whether small checks come back. They never left.

It's whether small checks become enough.

What if the company just doesn't need that much capital?

There's a bigger implication.

I've been assuming that once one of these companies works, the traditional playbook returns: raise a big round and scale.

But why?

The same leverage affecting engineering can affect support, sales, marketing, analytics, finance and operations.

Some software companies may need less capital to search and less capital to scale.

That's where startup economics and venture economics get interesting.

A $500M fund still needs to deploy $500M, acquire meaningful ownership and generate outcomes large enough to return the fund. A great software company might increasingly need very little of that capital.

The startup may need less capital than the investor needs to deploy.

Maybe that changes fund sizes. Maybe it creates more micro-funds, angels, fellowships and new financing models. Maybe founders simply own more of their companies. Maybe what's old becomes new again.

Frontier AI and capital-intensive businesses will follow a very different curve. But for software-first companies, there is a possibility I find much more interesting than smaller seed rounds: what if some great software companies just aren't very capital intensive anymore?

That would not just change startups.

It would change what venture capital is for.

In part 2, I make the case against it. Building may get dramatically cheaper while distribution, competition and everything surrounding the product remain expensive.