According to Business Insider, 2025 was a year of historic VC FOMO in AI, with nearly 700 seed-stage rounds of $10 million or more, an all-time high. Former OpenAI CTO Mira Murati raised $2 billion at a $10 billion valuation with scant details, and is now in talks for a $50 billion valuation. Other massive seed rounds include Naveen Rao’s $475 million at a $4.5 billion valuation and Eric Zelikman’s $1 billion target. VC firms, however, are on track for their worst fundraising year since 2017, creating a precarious imbalance. Menlo Ventures partner Deedy Das warns “2026 will be a year of reckoning,” pointing to almost 20 companies with billion-dollar valuations but no revenue. The frenzy has shifted power to founders, forcing investors to pitch themselves and often skip due diligence to get a shot at deals.
Bubble trouble?
Here’s the thing: this all sounds painfully familiar, doesn’t it? The comparisons to the dot-com boom aren’t just casual chatter; they’re coming from people like Sam Altman himself. When you have founders raising $50 million before even incorporating a company, as Das noted, you have to ask what exactly is being funded. Is it a business, or just a brand name and a dream? The sheer scale of these seed rounds is mind-boggling. A typical seed used to be around $2.5 million, a figure that’s now a quaint memory. We’re talking about record-breaking seed funding for people with zero work experience, as Foundation Capital’s Joanne Chen observed. That’s not investing; that’s buying a lottery ticket.
The power law and the froth
Now, every VC will tell you this is all part of the game. Venture capital runs on the Power Law—the idea that a tiny handful of startups will generate almost all the returns. So the logic goes: it’s fine that there’s froth, as long as you back the right frothy company. If you miss the next OpenAI or Anthropic, your fund is basically irrelevant. That’s the FOMO engine driving this. Steve Brotman from Alpha Partners put it bluntly: bigger funds are “paid to be in the next OpenAI.” So they’ll pay billions for the chance. But this creates a dangerous feedback loop. With fundraising for the VCs themselves drying up, the money has to come from somewhere. The pressure to deploy capital into “hot” deals overrides sensible checks.
reckoning-ahead”>The reckoning ahead
So what happens next? The consensus among the VCs quoted is that 2026 brings a correction. A “bloodbath,” as Chen suspects, for companies that can’t transition from hype to revenue. When the music stops—and it always does—the companies with insane burn rates and no path to profitability will evaporate. The investors who performed less due diligence, as Sapphire’s Cathy Gao highlighted, will be left holding the bag. It creates a “dangerous situation,” she says, and she’s right. But here’s the twist: unlike 2000, they argue there’s real substance underneath the hype. Real revenue, real customer value, real tech breakthroughs. The question is how much of the current valuation surge is based on that substance, and how much is pure speculative frenzy. I think we’re about to find out.
Bullish despite it all
And yet, despite all the warnings, every single VC in the article ends on a bullish note. They believe in the long-term TAM (total addressable market) for AI. They’re seeing record growth and efficiency. They’re convinced legendary companies will emerge from this cohort. Basically, they’re telling us there’s a bubble, but *their* picks are the sure things. That’s the VC mindset in a nutshell. The coming reckoning will separate the foundational tech—the real infrastructure and applications—from the vaporware. For every industry adopting AI, from logistics to manufacturing, the key will be deploying technology that actually works and solves problems, not just slides with buzzwords. The shakeout might be painful, but it’s probably necessary. The good news? The winners could be huge. The bad news? A lot of that “crazy” seed money is going to vanish.
