New quarterly funding data from Crunchbase shows that just 11 mostly-AI companies raising $1 billion-plus rounds account for 1/3 of all startup funding so far this year. Here's what VCs say about it.
The "flight to consensus" isn't just VC groupthink. There's perceived safety in it. No one loses their job for backing the same company everyone else is investing in (unless it's FTX, ofc...)
Even then I don't think everyone who backed FTX lost their jobs. You also benefit from a flywheel of quick markups for promotions/raising your next fund.
I was joking re: FTX. I’d actually be surprised if anyone lost their jobs. Incentive is high for funds to be contrarian. But the incentive is even higher for individuals to be consensus.
I think another two factors that might be creating a bit of a bloat in the numbers:
A) amount of dry powder - I keep hearing that many GPs are sitting on cash and a lot more hesitant to deploy capital. “Sure bets” likely make it a lot easier to justify the deployment, event if you did not fully research the fund or understand the true potential.
B) Companies raising more than they need since the money is not guaranteed in later rounds. With interest rates and the macro economic environment, every dollar might end up being last one you get for a little while.
Fascinating breakdown, and a stark reminder of the current funding bifurcation. While mega-rounds dominate headlines and skew the data, the real story might be what's not being reported: under-the-radar seed deals, slower-burning startups, and capital quietly deployed by emerging managers. The illusion of abundance is dangerous if founders don’t realize that we’re living in a winner-takes-most cycle, especially in AI.
Great article! Recently wrote a piece to show how the distribution of AI equity funding is skewed, leveraging economic inequality frameworks. Turns out inequality is much higher within middleware and core AI startups, while it remains low for vertical apps.
That makes sense -- every early-stage investor I spoke to recently said AI app layer and verticals are where they think they can still find investments
So ~$30B going to 11 companies. LPs probably guided to a 2-3x on that money by their managers, so expectation is $60-90B of EV from just a single quarter’s worth of funding.
If this scale and concentration of investment continues apace, it’ll tie the entire venture industry to performance and liquidity among these mega cap startups. Already a liquidity hangover from the last decade run-up and reset. Seems that the AI tail may end up wagging the LP allocation dog.
The "flight to consensus" isn't just VC groupthink. There's perceived safety in it. No one loses their job for backing the same company everyone else is investing in (unless it's FTX, ofc...)
Even then I don't think everyone who backed FTX lost their jobs. You also benefit from a flywheel of quick markups for promotions/raising your next fund.
I was joking re: FTX. I’d actually be surprised if anyone lost their jobs. Incentive is high for funds to be contrarian. But the incentive is even higher for individuals to be consensus.
Well put! And good because I couldn't really think of investors who did lol
Just a note this is the sort of article I want to read more of on Upstarts. The Big picture, the macro trends in startups and VC.
Thanks Michael, this is helpful feedback! I'll be sure to deliver more of it.
I think another two factors that might be creating a bit of a bloat in the numbers:
A) amount of dry powder - I keep hearing that many GPs are sitting on cash and a lot more hesitant to deploy capital. “Sure bets” likely make it a lot easier to justify the deployment, event if you did not fully research the fund or understand the true potential.
B) Companies raising more than they need since the money is not guaranteed in later rounds. With interest rates and the macro economic environment, every dollar might end up being last one you get for a little while.
Fascinating breakdown, and a stark reminder of the current funding bifurcation. While mega-rounds dominate headlines and skew the data, the real story might be what's not being reported: under-the-radar seed deals, slower-burning startups, and capital quietly deployed by emerging managers. The illusion of abundance is dangerous if founders don’t realize that we’re living in a winner-takes-most cycle, especially in AI.
Great article! Recently wrote a piece to show how the distribution of AI equity funding is skewed, leveraging economic inequality frameworks. Turns out inequality is much higher within middleware and core AI startups, while it remains low for vertical apps.
That makes sense -- every early-stage investor I spoke to recently said AI app layer and verticals are where they think they can still find investments
So ~$30B going to 11 companies. LPs probably guided to a 2-3x on that money by their managers, so expectation is $60-90B of EV from just a single quarter’s worth of funding.
If this scale and concentration of investment continues apace, it’ll tie the entire venture industry to performance and liquidity among these mega cap startups. Already a liquidity hangover from the last decade run-up and reset. Seems that the AI tail may end up wagging the LP allocation dog.
High stakes games all around.