2025: The Year of VC Investment Frenzy and Anticipation of a Market Shift in 2026

The year 2025 witnessed an unprecedented surge in venture capital activities, especially in the AI sector, where startups managed to secure vast funds without fully developed business models.

Deedy Das from Menlo Ventures has raised concerns about the sustainability of this trend, suggesting 2026 may offer a rude awakening. "It's clear that having numerous startups with multi-billion valuations but no revenue isn't a viable long-term model," Das commented.

The tech industry is buzzing with talks of an investment bubble reminiscent of the late '90s dot-com boom, with public market concerns about massive capital injections into AI hubs potentially being precarious, impacting shares of companies like Coreweave and Nvidia.

The Funding Frenzy and Emerging Risks

Despite difficulties in raising capital, VCs have eagerly backed AI firms. The fundraising landscape for VCs is bleak compared to the past few years, drawing a parallel to levels not seen since 2017, as reported by the Venture Capital Journal. "Typically, such conditions indicate a market correction on the horizon," Das noted, particularly alarmed by substantial fundraisings for companies not yet formally established.

In 2025, traditional seed-stage financing benchmarks were shattered, with notable instances of startups securing $10 million rounds, dwarfed by the new norm of enormous valuations driven by elite AI talent.

Just in the summer, Mira Murati, ex-CTO of OpenAI, amassed $2 billion on a $10 billion valuation, despite scant information on future plans. She's in discussions to achieve $50 billion in valuation. Similarly, Eric Zelikman and Naveen Rao have initiated massive fundraisings for their startups, hinting at high expectations reminiscent of historical peaks.

VC FOMO: Fear of Missing Out on the Next Pioneer

Steve Brotman of Alpha Partners encapsulates the sentiment of many VCs, expressing regret over missed opportunities with powerhouses like OpenAI, but remains optimistic about finding the next revolutionary company.

Many VCs find themselves caught in a race to latch onto the next successful venture similar to OpenAI, willing to gamble billions to secure their positions in potentially game-changing startups.

The Anticipated Startup Shakeout

Joanne Chen from Foundation Capital highlighted an emerging trend: young, inexperienced founders raising large sums based purely on their AI lab grassroots. "These fledgling ventures often lack the expertise to transform ideas into viable businesses," Chen observed, predicting a widespread industry consolidation.

The power dynamics have shifted since the post-2021 downturn. Presently, top-notch founders wield influence over VCs who strive to captivate them, as explained by Cathy Gao from Sapphire Ventures.

Accuracy in initial engagement has never been more crucial; missing the mark in a first interaction could mean exclusion from investment opportunities. This scenario has fueled creativity and reduced depth in due diligence among investors anxious to capitalize on hot prospects.

AI's Boundless Potential Drives Optimism Amidst Caution

While there's concern over current exuberance, the transformative potential of AI continues to ignite excitement among venture capitalists. "The metrics we’re seeing are unlike anything during the 2000 tech boom,” Brotman remarked, reaffirming confidence for 2026 despite the speculative atmosphere.

Cathy Gao remains enthusiastic, citing unparalleled advances in business growth and operational efficiency driven by AI. The anticipation of significantly expanding markets is propelling investor optimism, proposing that the AI sector's potential may far exceed initial estimations.

Venture capital inherently thrives on disproportionate returns from a small number of highly successful startups. Consequently, as VCs chase after the right investments, they eagerly await the emergence of extraordinary companies from the current burst of activity, embracing an investment philosophy that focuses on quick decisions and capital commitments.