The State of AI Venture Capital: 2025 Retrospective & 2026 Outlook

2025 marked a structural transformation in venture capital: AI captured 65% of US deal value (up from 35% in 2023), defense tech emerged as VC’s second mega-category with $48B+ deployed, and the market bifurcated sharply between AI and non-AI companies.

2025 By The Numbers

• $366.8B — Global VC Deployment
• 65% — AI Share of US Deal Value
• $250.2B — US Private AI Investment (68% of global)
• 100+ — New Unicorns Created
• $48B+ — Defense Tech Investment
• +228% — Venture-Growth Valuations YoY
• $67.7B — VC-Backed Exits (best since 2021)
• 308 — AI Unicorns Globally

The Great Bifurcation

Two parallel markets emerged:

• AI Companies: Thriving with 65% of deal value, 2-3 year scale cycles, mega-rounds normalized
• Non-AI Companies: Tightest funding since 2016, Series B/C squeezed, must prove fundamentals

Speed to Unicorn

46 companies went from founding to $1B+ in under 3 years, raising $39B collectively:

• Thinking Machines (Mira Murati): 10 months → $10B valuation
• Safe Superintelligence (Ilya Sutskever): 18 months → $3B+ raised
• Unconventional AI: 2025 founded → $4.5B valuation
• Tempo: 2025 founded → $5B valuation

Key Patterns & Mental Models

1. Barbell Distribution: Capital flows to extremes (mega-rounds + pedigree seeds)
2. Liquidity Pressure Cascade: LP stress → GP urgency → fast-cycle preference → AI wins
3. Trust Arbitrage: 53% of capital to repeat founders (up from 21% in 2019)
4. Fundamentals Filter: Public market = ultimate anti-hype mechanism
5. Vertical Wins: Horizontal AI commoditizes; vertical captures value
6. Consolidation Countdown: 2-3 winners per segment by 2026-27

The concentration is the feature, not the bug. Build for the new structure, not against it.

This is part of a comprehensive analysis. Read the full analysis on The Business Engineer.