2025 was defined by a surge of venture capital FOMO, as AI startups attracted massive funding with little more than ambitious visions and high-profile founders. The year saw hundreds of millions poured into companies with minimal revenue or traction, sparking growing concerns about a looming market reckoning in 2026. Deedy Das, a partner at Menlo Ventures focused on AI, warned that the current environment is unsustainable. “When you see almost 20 companies with billion-dollar post-money valuations that make no revenue, it’s hard not to question how many can actually succeed,” he said. The sentiment echoes broader fears of a bubble, with even OpenAI CEO Sam Altman acknowledging the parallels to the dot-com era. Public markets have already shown signs of strain. Stocks like CoreWeave and Nvidia have seen sharp declines, reflecting investor unease over the massive spending on AI infrastructure. At the same time, venture firms are struggling to raise capital, with 2025 on track to be the worst year for fundraising since 2017. “When funding dries up and valuations stay high, a correction is likely,” Das noted. The trend of sky-high valuations for pre-launch startups has become alarming. Seed rounds now routinely exceed $10 million—nearly 700 such rounds occurred in 2025, a record, according to Crunchbase. Founders with little to no business experience are securing billions. Mira Murati, former OpenAI CTO, raised $2 billion at a $10 billion valuation with minimal details on her new venture. She is now reportedly targeting a $50 billion valuation. Eric Zelikman, a top AI researcher who left xAI, is raising $1 billion at a $4 billion valuation. Naveen Rao, ex-AI head at Databricks, secured $475 million in seed funding at a $4.5 billion valuation for his new company, Unconventional AI. Steve Brotman of Alpha Partners attributed this frenzy to FOMO among large VCs. “If you’re one of these big funds, you’re paid to find the next OpenAI. If there’s even a chance a company could be it, you pay billions,” he said. Brotman admitted he regrets not investing in OpenAI or Anthropic—common sentiments across the industry. Joanne Chen of Foundation Capital expressed concern about the influx of young, inexperienced founders raising massive sums. “They’re not magically skilled at building businesses,” she said. “I suspect we’ll see a bloodbath in the coming years as many of these companies fail.” The power dynamic has shifted dramatically. In past downturns, VCs held the upper hand. Now, top founders have the leverage, forcing investors to pitch themselves and compete fiercely for attention. “You have to sell your firm in the first conversation,” said Cathy Gao of Sapphire Ventures. “If you don’t make an impression, you’re out.” This urgency has led to reduced due diligence. “Investors are getting less information and less face time with teams,” Gao said. “They have to decide fast—take it or leave it. That’s dangerous.” Still, most VCs remain bullish on AI. Unlike the dot-com bubble, they argue, today’s companies are generating real revenue, growth, and economic value. “The fundamentals are stronger,” said Brotman. “I’m very bullish on 2026.” Gao added that AI’s total addressable market is vastly underestimated. “The companies we’re seeing are breaking records in growth and efficiency,” she said. Venture capital operates on the Power Law—only a few startups deliver outsized returns. So while the market is frothy, VCs believe the risk is justified if they back the right companies. “Every VC thinks their startup will be the winner,” Gao said. “Our job is to convince the founder to take our money—fast.”