The startup ecosystem is stuffed with the transformative guarantees of generative AI, but a recent report from my research firm Startup snapshotshows that this excitement can come at a cost.
In the report Beyond the hype: GenAI’s real impact on building startupswe provide an honest look at how startups are using artificial intelligence – highlighting the opportunities, risks and challenges of this revolution. Survey results from over 220 founders and 85 GenAI experts indicate that startups urgently need to balance innovation with management.
Unrealized potential and missing principles for artificial intelligence
GenAI’s promise to speed up product development and reduce time to market captivated startup founders, with 66% of executives calling it game-changing.
However, the landscape resembles the Wild West, as greater than half – 52% – of startups say their employees independently select and use GenAI tools without any organizational oversight. While this self-adoption reflects the entrepreneurial spirit – flexibility, initiative and quick problem solving – it also exposes startups to significant risks, including security vulnerabilities and misuse of AI tools.
“Startups are leveraging the enormous potential of GenAI, but without clear rules they risk undermining their own innovations,” said Netanella Treistman, partner at Arnon-Tadmor Levy. “It is key to take a strategic, top-down approach from day one and establish protocols for using GenAI tools. The current agile model, in which employees select their very own tools, may match in the short term, but can pose significant challenges as the organization scales.
For startups to fully leverage the transformative power of GenAI, they have to strike a balance between flexibility and governance, ensuring the sustainability and security of their innovation efforts.
Employees unprepared for the realities of GenAI
Employee readiness stays one of the biggest obstacles to GenAI implementation. The report shows that 55% of startups have lower than half of their employees trained in GenAI, and only 15% of executives have invested in upskilling their teams.
This skills gap forces startups to rely on external AI expertise, forcing them to compete with large tech firms with deeper pockets for a limited pool of top talent. While this strategy may address immediate needs, it risks creating a knowledge vacuum inside organizations that can threaten their ability to innovate sustainably in the long run.
Rafał Ouzanfounder A. Teamhighlights the challenge: “The leap from prototype to production is not just a technical hurdle – it is a team challenge. “Startups are discovering that the key to AI-powered innovation isn’t just adopting the technology — it’s finding and supporting talent with a proven track record of building enterprise-ready GenAI applications.”
To stay competitive, startups must move beyond short-term solutions and prioritize internal talent development. Investing in worker training and upskilling may help build a foundation of experience that supports innovation and resilience as your corporation scales.
Excessive noise and poorly planned investments
The report reveals a disturbing trend: GenAI hype has led some startups to exaggerate their AI capabilities in pursuit of investor attention. More than 25% of surveyed founders admitted that they overestimate their use of GenAI in presentations. While this strategy has generated investor interest, with 76% of executives reporting greater investor enthusiasm, it also sets the stage for false expectations and misinvestments.
Despite the growing excitement, many investors are rushing ahead without sufficiently identifying the risks. Just 7% of founders reported being asked to outline their AI policy during funding discussions. This lack of scrutiny stems from a knowledge gap: many investors caught up in the GenAI hype lack the expertise to discover potential pitfalls and fail to ask critical questions during due diligence.
The findings underscore the need for investors to approach GenAI investing with a greater focus on stewardship and risk management, ensuring enthusiasm does not come at the expense of sustainable growth.