According to Sifted, venture capitalists are urging portfolio companies to raise capital before an expected crash in the AI fundraising market, with European AI startups securing €8.3 billion so far in 2025—nearly double the €4.6 billion raised throughout 2024. Investors warn that despite current sky-high valuations and bidding wars, the AI bubble will likely deflate as focus shifts from hype to real results. This warning comes as VCs advise startups to secure 24-30 months of runway and create contingency plans for potential market cooling.
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Understanding AI Investment Cycles
The current AI funding surge represents the third major technology investment bubble in 25 years, following the dot-com bubble of the early 2000s and the post-COVID tech boom. What distinguishes this cycle is the genuine technological breakthrough represented by large language models and generative AI, unlike previous bubbles driven primarily by speculation. The fundamental challenge for startup companies in this environment is balancing rapid growth expectations with sustainable business models, particularly as valuation metrics become increasingly disconnected from traditional financial fundamentals.
Critical Market Vulnerabilities
The most significant risk lies in horizontal AI applications—tools that serve broad, general purposes rather than specific industry needs. These platforms face existential threats from well-funded foundation model companies like OpenAI and Anthropic, which can easily expand into adjacent markets with their massive resources and distribution advantages. We’re already seeing this dynamic play out with OpenAI’s recent release of agentic browsing capabilities, effectively competing with startups that had built entire businesses around this functionality. The metric distortion problem is particularly concerning, with investors accepting creative interpretations of annual recurring revenue that often ignore customer churn and contractual commitments.
Industry Implications and Survivor Profile
The coming market correction will likely create a stark divide between winners and casualties. Startups with deep technical moats in specialized verticals—particularly in regulated industries like healthcare, legal, and finance—will have stronger defensive positioning. These companies benefit from domain expertise, regulatory compliance requirements, and proprietary data that create meaningful barriers to entry. In contrast, companies building general-purpose productivity tools or development platforms face the dual threat of competition from both large tech incumbents and foundation model providers. The artificial intelligence infrastructure layer may prove more resilient than application companies, as infrastructure becomes increasingly essential regardless of which applications ultimately succeed.
Realistic Market Outlook
Unlike previous bubbles, the AI investment cycle is supported by genuine enterprise adoption and measurable productivity gains, suggesting the eventual correction will be more of a valuation normalization than a complete collapse. However, the timing remains unpredictable—market sentiment could shift rapidly based on disappointing earnings from AI bellwethers like Nvidia, regulatory developments, or high-profile startup failures. Companies that raised at inflated valuations during 2024-2025 will face particularly challenging down rounds when they need to raise again in 2026-2027. The survivors will be those who secured sufficient runway during the current window and maintained discipline around burn rates while the market was euphoric.
