Peter Weddle
By Peter Weddle, Founder TAtech (without AI assistance; any mistakes are all mine)
If the stock market is any gauge, Democrats’ widespread electoral victories in the midterms are likely to put the brakes on unregulated data center construction. While there may well be other consequences, that is certainly going to be the most impactful. What does it mean for HRtech, TAtech, EDtech and WORKtech startups?
The diminution of available computing power that would result from a slowdown in data center construction will almost certainly give investors in early-stage companies pause. They won’t discontinue their funding of those with AI-native, people-first products, but the pathway to “yes” is going to get longer and harder to traverse. More importantly, the deciding criterion for making a financial commitment is almost certain to change.
Over the past five-to-seven years, many early-stage investors were willing to bet on the come. They bought into the potential of startups based on a value proposition they deemed credible or at most, justified with a relatively small proof of concept. Companies received pre-seed, seed, Series A and even Series B funding without a customer base, a sustainable revenue stream or profitability.
Here are just a couple of cases in point from Finance and Money earlier this year:
Humans&Humans: “Raised $480M at a $4.48B valuation to build AI systems for human collaboration. No public tool or revenue yet.”
Reflection AI: “Raised $2B+ at an $8B valuation to develop an open-source frontier AI model. Still in research phase, no commercial product.”
And then, there’s this from The Wall Street Journal:
“Imbue hit a valuation of more than $1 billion with its fundraising last year [2023], courting backers like Nvidia and ex-Google CEO Eric Schmidt. Chief Executive Kanjun Qiu dazzled investors with a vision to build intelligent computers that could give humans the ‘freedom, dignity, and agency to do the things we love.’”
Those days are over
A New Pathway to Funding
Going forward, investors are likely to shift their decision gate from proof of concept to proof of viability. That latter criterion is obviously more difficult and potentially more time-consuming to reach. There is a way to shorten the process, however. Corporate pilots. Setting up product trials within operating companies.
Companies have been piloting AI-powered products for several years now. In fact, according to McKinsey’s The State of AI in 2026, 88 percent of companies are using the technology in at least one business function, and most of those implementations are pilots. So, the opportunity is real, but as with anything else, there are pros and cons.
The upside, of course, is that the pilot project normally involves little or no loss of equity and the criterion for reaching “Yes” (for project initiation) is a product’s ability to solve a specific company’s problem rather than the size of its potential addressable market. The downside is that a product may not achieve the expected results, a situation that will become a part of its disclosable record, or those results can be negatively affected by the piloting company’s internal circumstances (e.g., reluctant users, faulty tech stack integration).
Nevertheless, corporate pilots are real world laboratories that can provide the proof of viability financial investors will expect going forward. They need to be carefully planned – there are good pilots and those that are not so good for any specific startup – with clear parameters for evaluating outcomes. And, they inevitably consume more time and effort than either the host or the startup expect, so they require an internal champion with solid leadership backing.
Most importantly, launching a pilot doesn’t automatically lead to a successful raise. What improves the odds most significantly is an outcome that satisfies the piloting company’s KPIs and, in the best of cases, demonstrates some potential for scalability. That’s no mean feat; a study at MIT found that 95% of generative AI pilot projects fail to deliver the expected ROI. So, while pilots are an effective way to achieve proof of viability for investors, that proof is only achieved when the pilot is carefully planned and delivers the expected outcome.
Food for Thought, Peter
Peter Weddle is the Founder & CEO of TAtech: The Network for Talent Technology Solutions. The author or editor of over two dozen books, he has also been a columnist for The Wall Street Journal and chaired major human-machine and leadership studies for select Federal Science Boards.
