2025 was the year of VC FOMO. A 'reckoning' might be coming in 2026.

The venture capital landscape in 2025 has been nothing short of exhilarating, especially for artificial intelligence startups. Companies in this sector have been securing substantial funding, with some able to raise hundreds of millions of dollars every few months. This has led to inflated valuations, with many founders landing multibillion-dollar assessments on the slightest hint of an idea. However, caution is starting to creep in among venture capitalists. Deedy Das, a partner at Menlo Ventures, warns that 2026 could serve as a turning point. He notes that it’s concerning to see nearly 20 companies boasting billion-dollar valuations without any revenue. Das highlights that the current situation is reminiscent of the late 1990s dot-com bubble, a sentiment echoed by OpenAI CEO Sam Altman. The public markets have also begun to feel the strain, with significant investments into AI data centers causing volatility in stock prices for companies like Coreweave and Nvidia. As VCs pour money into AI startups, they face challenges replenishing their funds, with projections indicating that 2025 could mark the worst fundraising year since 2017. Das expresses his worries about the industry, noting the prevalence of friends raising large sums without even formally launching their companies. He questions the sustainability of such practices, especially when seed funding rounds have skyrocketed to unprecedented levels; nearly 700 rounds exceeding $10 million were recorded in 2025, according to Crunchbase. One standout case involved Mira Murati, the former CTO of OpenAI, who raised $2 billion at a $10 billion valuation with minimal details about her startup. Despite lacking traction, she is now negotiating for a staggering $50 billion valuation. Similarly, Eric Zelikman, a top AI researcher, is in the process of raising $1 billion at a valuation of $4 billion for his new venture. Some industry experts, like Steve Brotman from Alpha Partners, believe that larger VCs are experiencing 'fear of missing out' (FOMO) on the next big AI success story. Brotman admits that many investors regret not getting in on early opportunities with major players like OpenAI and Anthropic. Joanne Chen from Foundation Capital reflects on her recent experiences at conferences, noting that many young founders are securing funding despite lacking experience. She predicts that a significant number of these startups may fail in the coming years. In the current climate, top founders hold significant leverage over VCs, who must now impress potential partners. Cathy Gao of Sapphire Ventures points out that VCs are increasingly required to pitch themselves to the startups, marking a shift in power dynamics. Despite the unease about overvaluation, many VCs remain optimistic about the future of AI, citing tangible numbers and profitability as indicators of real value. They acknowledge the potential for groundbreaking advancements and believe that while the market may be frothy, selecting the right companies will yield significant returns. Ultimately, the venture capital community is in a precarious position, balancing excitement for innovation against the risks posed by inflated valuations and potential market corrections. As they navigate this thrilling yet uncertain landscape, the coming year will be crucial for determining which startups will thrive and which may falter under the weight of expectations.