The state of VC within software and AI startups

The Pragmatic Engineer

The state of VC within software and AI startups – with Peter Walker

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The state of VC within software and AI startups – with Peter Walker

How are VC funding, hiring, and founder trends shifting—and what does it mean for software engineers at startups? Extensive data discussed with Peter Walker, Head of Insights at Carta.

Gergely Orosz

Aug 06, 2025

Transcript

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In This Episode

How is venture capital changing, and what do these changes mean for startups (and engineers working at startups)? In this episode of The Pragmatic Engineer, I sit down with Peter Walker, Head of Insights at Carta, to break down just this.

Today’s episode features more than a dozen charts. We go deep on the numbers: why fewer companies are getting funded despite record VC investment levels, how hiring has shifted dramatically since 2021, and why solo founders are on the rise even though most VCs still prefer teams. We also unpack the growing emphasis on ARR per FTE, what actually happens in bridge and down rounds, and why the time between fundraising rounds has stretched far beyond the old 18-month cycle.

We cover what all this means for engineers: what to ask before joining a startup, how to interpret valuation trends, and what kind of advisor roles startups are actually looking for.

If you work at a startup, are considering joining one, or just want a clearer picture of how venture-backed companies operate today, this episode is for you.

Interesting charts we discussed in this conversation

A few of the interesting graphs and trends we discussed, all from the Carta Data Minute newsletter.

Hiring is down since 2021 across VC-funded startups

Carta is recording fewer new hires than in the previous years, suggesting startups are, indeed, hiring less

The reason for this downwards trend is most likely the end of zero interest rates, which hit the tech industry from 2022.

Startup teams are getting smaller since 2021

The data is hard to argue with. Is the cause the end of zero interest rates, or AI? Hard to tell.

The trend of teams getting smaller started from 2021

Fewer startups are raising funding

Compared to 2021, there are about half the number of VC investments being done in 2025

AI tools leading to more solo startups?

Another curious data point:

A large uptick in startups with one founder from 2024, when AI tools already went mainstream

VCs still like backing solo founders

Amusingly, despite more startups having one founder, VCs do not back more of these solo founder startups:

While there are more startups with solo founders, VCs do not back them more than before

Advisor equity: expect very small percentages

At 57:26, we discussed what a realistic advisor equity package looks like, and the most in-demand skills for experienced engineers to become advisors:

Advisors get small pieces of the pie at startups of all stages: and this is normal!

It’s much more rate to get to Series A these days

Startups used to be “easier” up to 2021: early-stage startups went from Seed to Series A investments in larger numbers than today

When do founders call it quits?

VC-funded startups are about growth: and when growth stops, it might be time to call it quits. Data on when this happens:

Interesting observation: ARR per FTE is the new “startup metric”

Peter (at 17:18) “A lot of it can be wrapped up in this single metric. that everyone across Silicon Valley is now talking about, which is ARR per FTE. How much revenue do you have for each employee that works at the business as a measure of how capital efficient you are?
[ARR per employee] is a metric that many, many, many more VCs are asking startups for earlier and earlier in their life cycle.”
Gergely: “So is this new?”
Peter: “It's not new necessarily in that it's always been a metric that people care about. What's different is the emphasis.
Now we're in this place where, again, I think this goes back to the examples across the industry. If it's possible to build a company that has a hundred million dollars of ARR with 20 people. That's a better, that's a more profitable, more capital efficient company than the same company with 100 million ARR that has 200 people.”