Over the past year, the AI sector has experienced significant growth. However, unlike previous venture trends such as crypto or web3, the AI sector already had established startups and established players when the market gained momentum. This has led to AI exits and discussions around potential government regulation. As a result, the ecosystem for founders and investors has become more complex, especially for those who weren't previously focused on AI. Entrepreneurs have been drawn to this sector, and early-stage investors are now trying to differentiate between startups fueled by hype and those with potential for substantial growth.

Similar to other sectors, investors are seeking companies with a competitive advantage or a strong moat. Given the presence of major players like Microsoft, Google, and OpenAI, investors want to avoid backing companies that may become obsolete due to the actions of larger entities. Chris Wake, the founder and managing partner at Atypical Ventures, explained that his firm is currently taking a step back from AI to observe the situation. He also expressed skepticism about startups that rely heavily on existing large language models, highlighting that building upon someone else's model may lead to a race to the bottom. Wake considers this approach to be less transformative and therefore less appealing.