In Q1 2025, AI startups grabbed 57.9% of global VC. They took $73.1 billion. Nearly two-thirds of U.S. deal value chased AI hype. This ignored proven revenue. Here’s the reality. This isn’t growth. It’s distortion. Founders fuel it with narratives over numbers. Investors grow wary. Late-stage founders stay exposed. For example, PitchBook notes AI firms drove 1.1% of GDP growth. Yet vulnerabilities hide behind capex booms. Moreover, over 370 AI unicorns now top $1 trillion in value. This mirrors dot-com excess.
Why Hype Is Inflating Valuations Beyond Sanity
Founder stories boost pre-seed valuations. AI fervor amplifies them. Dilution hits 2023 peaks. Investors pick sizzle over substance. Take OpenAI. Its $40 billion round masks market fragility. Median AI Series A pre-money hit $84 million. That’s far above SaaS norms.
Analyst Bryan Yeo warns. “Any startup with an AI label gets high multiples. They base it on minimal revenue.” This may suit some firms. But not others. For instance, LLM vendors lead at 44.1x revenue multiples. Search engines follow at 30.9x. Consequently, early-stage deals value firms at $400 million to $1.2 billion per employee. That’s stunning, per TPG’s Sisky.
Let’s break this myth. Over $80 billion flowed to AI in early 2025. Many lack product-market fit. Hype pressures vertical SaaS startups. It dilutes founder control. Thus, “vibe revenue” dominates pitches. Real traction lags.
The Counter: Not All Bubbles Are Bad—AI Could Be Different
Optimists push back. They cite AI capex. Over 1,300 startups top $100 million valuation. 498 are unicorns. Scale AI raised big in Q2. Global funding hit $91 billion. 45% went to AI. This could spark dot-com transformations.
However, PitchBook shows drops. Growth-stage medians fell from $600 million peaks. Down rounds hit 15.9%—a 10-year high. Here’s the nuance. AI Series B steps up 2.1x. That’s above the 1.4x average. But winners like OpenAI at $300 billion are rare.
Furthermore, infrastructure and robotics hold strong multiples. They offer defensibility. This tempts conscious consumerism growth. Still, stagnation looms for most. After all, multiples compress post-Series C. Investors demand margins.
What Happens When the Bubble Pops in 2026?
Scrutiny will sharpen. Non-AI valuations will flatline. M&A will surge to 11%. Founders pivot to exits. Erik Gordon calls it an “overvaluation bubble.” CoreWeave lost $24 billion in days. Portfolios tied to retirement face risk. Regional e-commerce players eye acquisitions.
U.S. funding tracks its second-best year. AI surges up 75.6% in H1. But VC funds struggle. Volatility rises—per PitchBook-NVCA. Sustainable repair innovators may thrive. Hype-chasers face 29.3% down rounds in AI.
Expect more. AI capex hides economic cracks. Market expectations outpace tech delivery. Thus, 2026 brings corrections. Bubbles pop via overinvestment tangles, per Yale experts. Check HBR’s AI boom vs. bubble analysis for deeper insights.
5 Bold Steps to Valuation-Proof Your Startup Now
For instance, act with these moves:
- Audit revenue multiples. Use PitchBook’s Venture Monitor. Benchmark peers. Anchor pitches in data.
- Diversify beyond AI. Map profitability. Blend vertical SaaS with moats.
- Secure secondary liquidity. Retain talent. Avoid dilution traps.
- Court acquirers. Prioritize M&A. Test with micro-deals.
- Stress-test markets. Validate fit before bold claims.
These steps build resilience. They shift focus from hype to proof.
Founder Playbook: Build Beyond the Bubble
Next, try this advice:
- Reframe narratives. Drop “AI moonshot.” Say “revenue-resilient scaler.” See Yale Insights on AI risks.
- Monitor signals. Track 15.9% deal drops via PitchBook. Pivot to bootstraps.
- Add ethics. Weave sustainability. Attract post-bubble capital.
Additionally, watch indicators like Brookings outlines. They signal bubble health. These tactics endure corrections.
The takeaway? Focus on fundamentals. Ditch frenzy. Audit multiples today. Target acquirers tomorrow. Download PitchBook’s Q2 Venture Monitor. Recalibrate now.
