What is the cost of the AI hype cycle? A lack of funding for other startup ideas.

SaaS stocks and investments are plummeting —  and AI hype is to blame. But is there a plot twist ahead?

Last year, AI companies captured 50% of tech startup funding for the first time, raking in $202 billion in new investments. Expect this trend to continue in 2026, as investment funds look to deploy a dragon’s hoard of dry powder worth up to $4.63 trillion (per Pitchbook).

As a result, good ideas and sound businesses in SaaS or other non-AI startups are simply getting ignored by investors. However, this also creates opportunities for both startups and funders willing to zig when the rest of the tech industry zags.

Keep reading to learn more.

SaaS and other non-AI startups are struggling to get funding

The funding environment for non-AI tech startups in subsectors like SaaS has grown challenging. Tech remains a magnet for investors, but by one estimate, startups with AI features raised 83% more funding than other startups in 2025.

Here are some of the key funding challenges non-AI startup CEOs face:

• Limited funding: New startups are struggling to get early-stage funding, as AI pulls dollars and attention even from valuable tech sectors like SaaS.
• The B-round gap: Relatedly, even startups that previously received seed-stage or series-A investments are also finding it harder to raise a second funding round. More VC and private equity investors have been hesitant to follow through on early-stage investments made a few years in the pre-ChatGPT era.
• Stifled innovation: Because AI is hoovering up so many dollars, startup leaders have fewer resources to drive innovation in other areas. Healthtech, pharma, education or social benefit and SaaS apps may not necessarily find much benefit from integrating AI technology, but are often found wanting by investors as a result.
• Stuck money: Some funders have also been hesitant to exit from their non-AI startup investments because they haven’t hit their target valuations. This can leave both backers and startup leaders stuck in a holding pattern and limit opportunities for the latter to take on new money.

However, leaders at SaaS, healthtech and other startups that aren’t primarily focused on AI shouldn’t just throw in the towel — because the current funding challenges are also an opportunity.

Undervalued startups present an opportunity for investors

A boring investment is often the better investment. And venture capital and private equity firms ignoring non-AI tech companies are missing opportunities to invest in structurally sound businesses with lasting potential.

With so much investor attention focused on AI, the field is also more open than in years past. Investment firms that do look to buy into non-AI tech companies will face less competition and potentially, better terms, as well as significant upside should AI-hype begin to cool.

And as rumblings of an AI-sector market correction continue to grow louder — with even OpenAI chief Sam Altman admitting that AI is likely a bubble — VCs and PEs could also look to SaaS, healthtech or fintech companies to hedge their bets against a sharp drop in value of their AI-holdings.

However, putting money into non-AI tech will demand that investors buck existing market trends. That takes discipline and a tolerance for risk on the part of fund managers, not because the actual investments are riskier, but because most people want to move in step with the crowd.

Can startup leaders make it a little easier for potential backers to buck current trends?

How can tech startups secure venture capital and private equity funding even in a tough market?

Leaders at tech startups that aren’t built around AI tech can still attract capital. But you have to stay smart in both your pitch and business execution.

Here are three steps to help:

1. Focus on your core business of solving problems

Every good business exists to solve a problem. If your startup addresses a major problem for your customers, then you have the foundation of a valuable, sustainable business even if your particular model doesn’t come with a dose of sizzle.

In any market, there are always smart investors looking for fundamentally sound companies that are undervalued. This was Warren Buffett’s business model because it works. But you have to be rock-solid on the fundamentals to attract attention here.

Focus your attention on your customers’ core problems and how your business solves those problems — and then communicate that focus to your investors.

2. Use AI where it makes sense

It may be tempting to slap AI features into your product just so you can tell funders that you, too, are an AI company. But navigate that instinct carefully.

Think about whether adding an AI component truly would make your product more useful to your customers. For example, if you make a CRM and see an opportunity to experiment with an agentic AI that could automatically decide when to send marketing or sales messages based on individual customers’ engagement patterns, try it.

But always loop back to your core business here. If an AI tool solves a customer problem, great. If not, it probably doesn’t make sense to include.

3. Leverage advisory support

You’ll often benefit from engaging a third-party advisor to help your startup navigate the current funding market. An advisor can help you build the value of your business, build relationships with investors and navigate capital raises.

Look for an advisory firm that sits at the intersection of tech and finance and understands the business from the perspective of both startups and investment firms.

How Wipfli can help

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