Investors are drowning in AI pitches. Here is why they are starting to care less about the model and more about the founder.
In Kuala Lumpur, the air in the conference hall felt thick with a specific kind of anxiety. Norman Matthieu Vanhaecke, the head of Cradle Fund, stood before a room of peers and admitted that the market had become genuinely difficult to navigate. He noted that roughly 60% to 70% of the 1,000 applications his team receives annually now claim to be AI driven. This is not a niche trend. It is a saturation event.
The problem is not that artificial intelligence is bad for business. The problem is that everyone suddenly has it. Vanhaecke explained that it is hard for venture capitalists to decide where to park taxpayer money when every startup claims to be AI native. The distinction between a genuine breakthrough and a marketing buzzword has become the central challenge of 2026.
The Crowding Out Effect
Cradle Fund was established by the Ministry of Science, Technology and Innovation in 2023. It provides grants, equity, and mentorship to tech entrepreneurs. But Vanhaecke warned that the return on investment must come back to the country and its people. This constraint makes the selection process brutal. You cannot fund everyone who says they are building the future.
Startups must now develop niche solutions that serve not just the local market but also regional and international audiences. The bar is higher. The margin for error is smaller. If you cannot demonstrate a clear path to differentiation, you are just another slide in a deck.
Beyond the Hype Cycle
Karen Lau, chief operating officer of Sunway iLabs, offered a sharper critique. She said investors need to distinguish between companies that genuinely have AI capabilities and those simply using the term for positioning. The key question is defensibility. Are you building a thin layer on top of existing frontier models, or is your technology deeply integrated into the customer’s business processes?
This is a practical question with financial consequences. A thin wrapper is easily copied. A deep integration is a moat. Lau’s point cuts to the heart of the current startup landscape. The model is no longer the product. The implementation is.
Sector Expertise Wins
Bikesh Lakhmichand, CEO of 1337 Ventures, made a counterintuitive statement. He said his firm funds expertise in a specific sector, not so much the AI itself. He looks for founders with deep knowledge in healthcare, fashion, or marketing, rather than those building generic AI applications. This shifts the value proposition from the tool to the problem.
This approach makes sense in a crowded market. If everyone can access the same large language models, the differentiator is domain knowledge. A founder who understands the regulatory nuances of a healthcare system can build a product that a pure tech generalist cannot. The AI is just the engine. The sector knowledge is the map.
The Human Element
While investors debate technical defensibility, founders in Lagos are grappling with a different pressure. EandC Legal launched The Founder Room to address the health, legal, and business challenges that come with scaling. The inaugural session, held on September 30, was themed around the things we don’t talk about. This is a direct response to the isolation that comes with high-growth expectations.
Omoruyi Edoigiawerie, founder of EandC Legal, argued that sustainable businesses cannot be built indefinitely without addressing the wellbeing of their founders. The session featured medical consultations and mental health support. It is a reminder that the human behind the algorithm is still the most fragile component in the startup equation.
A New Standard
The convergence of these trends is clear. The era of easy funding for generic AI ideas is ending. The next phase will be defined by depth, not breadth. Investors are moving from asking what you use to asking how you use it and who you are. This is a healthier market, even if it is a harder one to enter.
For founders, the message is unambiguous. Stop selling the technology. Start selling the outcome. Stop relying on the buzzword. Start building the relationship. The gold rush is over. The mining has begun.