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.
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.
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.
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
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.