TheNewMessy Middle

How AI, Capital, and the Incumbent Advantage Are Reshaping Early-Stage Growth

By James Wong

There’s a new reality forming in early-stage companies right now.

It’s not just harder. It’s more complex. But it’s also more opportunistic than it’s been in years.

We’re entering a new version of what we’ve always called the “messy middle.” And it’s being reshaped by forces that didn’t exist, or at least weren’t this real, when I wrote the original version of this piece last June.

I had three conversations last week that crystallized a lot of what I’ve been thinking. All three were with founders whose companies received funding through Founder’s Chair events. All three are building in our space. And all three are wrestling with the same question in real time: what do you do with your team when AI agents can do in hours what used to take engineers weeks?

Their answers were different. And those differences say everything about where we are right now.

Three Founders. Three Bets. One Shift Nobody Can Ignore.

The first founder didn’t hesitate. He proactively let two engineers go. Not because they weren’t talented, but because AI agents can now handle the work they were doing at a fraction of the cost and in far less time. Tools like Claude Code and others in the agentic stack have replaced what used to require dedicated headcount. He told me it gave his company real momentum. Leaner burn. Faster iteration. Sharper focus. He’s not apologetic about it. He made a deliberate bet.

The second founder team took a different approach. They also reduced headcount, but strategically. They shed what they described as lower-tier engineering roles and doubled down on bringing in senior-level engineers only. Their logic is sound: with the right agentic tools, a single great senior engineer today can do what a team of five used to. They’re not building a smaller company. They’re building a more leveraged one.

The third founder, a woman leading a firm I have a great deal of respect for, isn’t letting anyone go. Instead, she’s reallocating time. Shifting people toward go-to-market, toward strategy, toward the work that AI can’t do yet. Her bet is that the capacity AI creates will get absorbed by growth. She’s betting on her people, not against them.

Three different answers. But here’s what all three have in common: none of them are burying their heads in the sand. They’re each making a deliberate, eyes-open bet on how to use this moment. That’s what good founders do.

And that is exactly the kind of conversation I want more of inside this community.

What Changed

Over the past 12 months, tools such as AI agents, code copilots, and autonomous workflows have fundamentally shifted how companies are built.

Engineering teams are smaller and more leveraged
Development cycles are faster
Infrastructure is cheaper to build and maintain
Research and iteration happen in days, not months

This is not theoretical. Founders in our network are building real products with lean teams, lower burn, and fewer early hires than would have been imaginable 24 months ago. Labor used to be the constraint. Now it’s leverage.

But here is what I want to be honest about: this shift has also created new complexity that doesn’t get talked about enough.

The Paradox

This creates a strange but real tension for every founder in the messy middle right now.

On one hand, you can delay raising capital. You can prove more before dilution. You can build further with less. The traditional Series A raise of $7M–$10M built to cover 18 months of engineering burn looks very different when your per-engineer cost has dropped by 60–80%. Institutional investors I speak with are increasingly expecting founders to prove more before raising. And the founders who can are commanding better terms when they do.

On the other hand, if you have real traction today, the window may be shorter than you think.

When development costs collapse for you, they collapse for everyone. The barriers to entry fall with them. What your team spent 18 months building could theoretically be replicated in weeks by a well-capitalized competitor armed with the same tools.

In a world where product can be replicated, relationships and distribution cannot. If you have carrier partnerships, agency contracts, and real customer adoption, taking on strategic capital now to lock in distribution may be more defensible than waiting until you’re “ready.”

So the question becomes: if you have traction, why wait?

There is no clean answer. The right move depends on your traction, your market, your team, and your risk tolerance. Which is exactly why you shouldn’t make that call alone, and why the people in the room with you matter enormously.

The Thing I Used to Believe, And Have Had to Rethink

I want to share something I’ve been wrestling with, because I think it’s important for every founder in this space to hear it plainly.

I used to believe, and said it often, that if your technology solved a real problem, the market would find you. Users would gravitate toward what actually worked. The best product would win. And incumbents, weighed down by legacy systems and slow decision-making, would eventually give way to focused, fast-moving point solutions.

I’m not sure I still believe that in the same way.

Here’s what changed my thinking: watch what happened last month when LPL Financial announced an expanded partnership with Anthropic to build AI integrations across its network of more than 30,000 financial advisors. Orion did the same. These aren’t companies replacing AI with incumbents; they’re incumbents embedding AI directly into the platforms advisors, agents, and institutions already use every day. Anthropic’s head of asset and wealth management framed it this way: “They own what they build. We’re providing the building blocks, while the experts build on top.”

Think about what that means for a founder building a point solution in wealth tech or insurtech right now.

The enterprise firms have the data. They have embedded relationships. They have the compliance infrastructure. And now they have access to the same frontier AI models, customized to their proprietary data, controlled by their compliance teams, and distributed to their existing customer base of tens of thousands of advisors, agents, or carriers. The switching costs that used to protect point solutions from being replaced? They now cut the other direction. They protect incumbents from being disrupted.

Good technology that solves a real problem is no longer sufficient on its own. The moat has to be deeper than the product.

This does not mean it can’t be done. It means the proposition has to be stronger. The differentiation has to be defensible. The wedge into the market has to be sharp enough that users make the switch, or that a large firm decides it’s easier to acquire than to build.

And here is where it actually gets interesting for our Funders: both outcomes are good ones. If a founder builds a genuinely defensible solution and gets adopted, that’s a return. If a large firm sees the threat and acquires, that’s also a return, and frankly, the acquisition path has become one of the most realistic exit scenarios in this space, given how muted the IPO market has been. In 2024, every single insurtech exit was an acquisition or buyout. Not one IPO.

For a Founder, the implication is this: build something the incumbents cannot easily replicate internally, and make sure the people in your corner can get you in front of the right acquirers and partners when the time comes.

That is something TFC is uniquely positioned to help with.

What The Quiet Insiders Know (And Rarely Say)

I spend a lot of time with investors, operators, and executives across this industry. Some things get said in private that don’t make it into the press releases. I think it’s time to say some of them out loud.

The bar for “traction” has been quietly raised, and most Founders don’t know it yet.

Eighteen months ago, a couple of pilots and a strong deck could get you a serious institutional conversation. That window is closed. The investors I talk with are now asking about repeatable sales engines, not just signed pilots. They want customer retention data. They want payback math. “Pilot purgatory”, where enterprise clients test without urgency to buy, is now one of the most commonly cited reasons investors pass. If your pipeline is full of pilots and light on contracts, that’s not a sales problem. It’s a story problem.

The IPO drought has changed how smart angels think about their bets.

There were only two IPOs in the entire insurtech sector in 2024. Two. Exits were almost entirely M&A, with compressed multiples. That has a direct effect on angel investor psychology at events like ours. Smart angels are asking: what does the exit path actually look like? Founders who can speak credibly to acquisition value, strategic fit, or a realistic path toward profitability without a major public exit are standing out in ways they weren’t before.

Most investors won’t tell you when they pass because of the team.

They’ll say “timing isn’t right” or “it’s not in our current thesis.” But more often than founders hear, the real reason is a quiet concern about execution capacity in regulated markets. Can this team navigate a carrier partnership? Handle compliance as they scale? Do they understand the distribution dynamics well enough to land the right customers? These questions don’t get asked in pitch meetings. They get answered, or not, by the relationships and context that surround a founder before they ever walk into the room.

AI has created a dangerous illusion of readiness.

Because founders can now build faster and cheaper, some are arriving at funding conversations with more polished products and less proven businesses. An MVP that looks like a Series B product can actually be a liability, because it raises expectations that the commercial fundamentals don’t yet support. Investors who’ve been around a cycle are looking past the product and asking harder questions about the customer. How many? How long? What does churn look like? A great demo with two clients still in a free trial is not traction.

The real value of strategic capital is almost never discussed honestly.

Founders think of angel investors as the check. What they consistently undervalue is the reference call. In insurance and wealth, the right operator making one phone call to a carrier VP or agency principal can unlock a customer relationship that no amount of outbound sales could reach. The founders who win in this space are almost always the ones with that kind of access. Building it from scratch takes years. Borrowing it from a well-connected investor takes one conversation.

The Shift in Capital Strategy

We are seeing a clear pattern emerge across how capital is being deployed and how founders are thinking about when to raise.

The seed stage is stretching.

Founders can now build more before raising, show real usage and early revenue, and reduce early capital needs. This pushes out the traditional VC entry point, and it’s changing what “seed-ready” looks like. Full-year 2025 InsurTech investment rose 19.5% to $5.08 billion, the first annual increase since 2021, but deal count is at a multi-year low. Fewer bets, larger checks, higher bars.

Institutional capital is getting more selective.

Firms are looking for proven traction, clear distribution paths, and capital efficiency. The bar is higher, but the risk is actually lower once companies reach it. AI-centered insurtechs captured nearly 75% of all funding in Q3 2025. If you don’t have an AI story that’s embedded in your operations, you’re not yet speaking the language institutional capital wants to hear.

Angels are becoming more strategic.

The best angel investors today are opening doors to customers, shaping early go-to-market, and helping validate real demand. Capital alone is no longer enough. The founders who get the most from their angel relationships are the ones who treat them as operating partners, not just checkwriters.

Where The Founder’s Chair Operates

This is exactly where we have always lived. Not at the idea stage. Not at the full institutional scale. In the middle.

We’ve deployed over $11.3M across 17 funded companies out of 38 presented, with an additional $2M+ in follow-on capital from the same Funders who believed enough in these companies to go back in. That number reflects something real: when you curate both sides of the table with intention, and prepare founders for what investors actually want to hear, things happen that don’t happen anywhere else.

Here's what AI can't do:

Put founders in front of their customers, before they even know they’re selling. Our Funder community isn’t just capital. It’s carriers, agency principals, wealth advisors, and fintech operators. A single conversation at a TFC event can unlock a customer relationship that six months of outbound couldn’t touch.
Give founders context that changes their trajectory. Not generic mentorship, specific, hard-won operator knowledge about how this industry works, where the bodies are buried, and which partnerships are worth pursuing. That context is not Googleable.
Deliver honest feedback before founders get it the hard way. We tell founders what investors are actually thinking, not the polished version they’d hear in a pitch meeting. That shapes how founders carry themselves when it counts.
Create a network that compounds over time. TFC is not transactional. Our funders stay engaged. Follow-on capital has happened. Introductions that started at one event have turned into partnerships months later. The flywheel is real.
Help founders think through their capital strategy, not just access capital. When, how much, with whom: these are decisions that benefit enormously from the perspective of people who’ve made them before in this specific industry.

As we move toward a consulting retainer model and a structured angel syndicate, we’re building the infrastructure to do this more consistently, at greater scale, and across multiple stages of a founder’s journey.

The Fast-Forward Effect, and The Cost Nobody Talks About

Here’s something I’ve been thinking about that rarely makes it into the funding conversation: AI isn’t just changing what founders can build. It’s changing the speed at which they have to think, decide, and adapt.

The best way I can describe it: if you’re a founder using these tools well, you’re operating like someone who just fast-forwarded two years. You’re testing ideas in days that used to take quarters. Prototyping, iterating, and pivoting at a pace that wasn’t possible before. That sounds like a pure advantage, and in many ways it is.

But there’s a real cost that comes with it. The mental load of operating at that speed is significant. The creative process never stops. The decisions compound faster. The pressure to keep up, with the tools, with competitors using the same tools, with investors who now expect more before they write a check, is relentless. Founder fatigue is arriving earlier in the company lifecycle than it used to.

This is one of the reasons I believe the operator relationships TFC provides matter more now, not less. Not just for the capital or the connections, but for the perspective. Someone who has navigated a build cycle before, who can tell you when to push and when to stop, is genuinely rare in a world moving this fast.

The founders who will win in this environment aren’t necessarily the ones who move the fastest. They’re the ones who move with the most clarity. And clarity, in my experience, almost always comes from conversation, not computation.

The Human Element Isn’t Going Away, But It Is Changing

Our industry has been here before. When robo-advisors launched, the narrative was that human advisors were finished. Clients would manage their own portfolios. The math would replace the relationship. We know how that played out. Robo-advisors found a lane, but they didn’t replace the human element. They revealed how much that element was actually worth.

AI is a bigger shift. I won’t pretend otherwise. But I think the core dynamic is the same: what gets automated is the task. What remains irreplaceable is the judgment, the trust, and the human context that no model can fully replicate.

For advisors, agents, and operators in our space, the honest implication is this: AI will handle the data analysis, the recommendations, the workflows. Your value will increasingly live in the soft skills, building trust, understanding what a client actually needs beneath what they say they need, navigating the emotional dimension of financial and risk decisions. That is not a small thing. That is the whole thing.

There is a harder truth here too. As AI compresses the margin on transactional services, the economics of running a practice or a firm will change. Larger books of business. More leverage per advisor. Fewer people doing more. Some of that is efficiency. Some of it will be painful. The firms and founders who get ahead of that curve, rather than waiting for it to arrive, will be in a fundamentally different position.

One data point worth noting: recent research found that some large firms’ financial AI tools are producing inaccurate outputs as high as 85% on certain task types. That number will improve. But right now it is a reminder that the human in the loop is not just a regulatory checkbox, it is a competitive advantage. The firms and founders who build with that understanding will be the ones clients trust when the dust settles.

For Founders

If you are in this stage, you have more than an idea, you have early traction, and you are deciding how to scale, your focus should be on three things:

Who can help you sell , not just who can fund you.
Who can accelerate adoption , particularly inside the carrier, agency, and advisor networks where your solution lives.
Who can help you build a defensible moat , because in a world where product is increasingly replicable, the moat is relationships, data, and distribution.

The best technology doesn’t always win. The best-distributed technology usually does. If you’re at this stage and want access to the operators, investors, and buyers who can accelerate that distribution, reach out. We should talk.

For Funders

This environment creates one of the more interesting early-stage opportunities I’ve seen in years, if you approach it with the right frame.

AI has compressed the cost of building, which means the founders coming to market today are often further along at seed stage than their counterparts were two or three years ago. They’ve proven more on less. The risk profile on the right early-stage bets in insurance and wealth has shifted.

At the same time, the premium on relationships has gone up, not down. In a world where product can be replicated and incumbents are embedding frontier AI directly into their platforms, the companies that win will be the ones with distribution advantages, carrier relationships, agency partnerships, advisor networks. Those advantages come from people, not platforms. And as a Funder in this community, your relationships are the most valuable thing you bring.

The role of the investor is evolving. From capital provider to growth partner. The Funders who will have the best outcomes over the next five years in this space will be the ones who deploy relationships as actively as they deploy capital.

Final Thought

The messy middle is not going away. It is getting faster. More competitive. More crowded. But also more valuable.

The companies that win will not just build better products. They will align with the right partners, access the right distribution, and take capital at the right time. They will build something the incumbents either can’t replicate internally or decide it’s cheaper to acquire than to compete with.

The three founders I spoke with last week are each navigating this in their own way. One leaned hard into efficiency. One rebuilt around leverage. One is betting on her people. None of them is pretending the world hasn’t changed. All of them are in motion.

That is the spirit of what we’ve always tried to attract to TFC, founders who are grounded in reality and moving with intention. Funders who know this industry well enough to add something beyond capital.

Let’s build what’s next, together.

Are you in the Messy Middle?

A Founder looking for strategic capital, real customers, and operator insight?

A Funder looking for curated, early-but-proven companies in insurance, wealth, and fintech?

The best opportunities are not always the most visible. They are the most connected.