AI Is Eating Venture Capital

Morning everyone, this is Ryan from Breakout.

$297 billion was raised in the first quarter of this year.

That number came across my feed a few weeks ago and I've had a few founders mention it since - usually with some version of "so the market must be back?".

On the surface it looks like open season. Record funding, more capital deployed in Q1 2026 than in all of 2025 combined. If you're in the market right now, you'd expect your inbox to be flooded.

Here's what the headline is hiding.

Two Different Markets

Of that $297 billion, $242 billion - roughly 80% - went to AI companies.

And of that AI total, four deals alone accounted for 65% of all global venture investment in the quarter. OpenAI ($122B), Anthropic ($30B), xAI ($20B), Waymo ($16B). Four companies. $188 billion. That is the type of capital that used to be used for a sovereign wealth event.

The GP at Index Ventures put it plainly in a Bloomberg interview:

"You have a handful of companies raising rounds that look more like sovereign debt issuances, and then you have everyone else competing for a shrinking pool of capital. The middle has been hollowed out."

The Seed Stat Nobody Talks About

Seed funding in Q1 totaled $12 billion - up 31% year over year. But that increase came entirely from larger check sizes going to fewer companies. Deal count fell 30% to 3,800.

Non-AI sectors received about $60 billion in Q1. Across hundreds of deals. Most of them sub-$10M rounds, and plenty of founders reported those closing slowly.

What This Means If You're Not an AI Company

Two camps I've seen founders fall into when they process this data.

Camp 1 panics and starts bolting "AI-powered" onto their pitch deck. Investors see through this immediately. If your core product isn't AI-native, calling it AI doesn't change your multiple - it just raises a red flag about how you frame your business.

Camp 2 ignores it entirely and keeps running the same process they've always run. Broad investor lists, generalist VCs, etc. In this market, that's a slow bleed.

The answer is neither. What's actually working for founders in non-AI sectors right now is surgical targeting.

You're not trying to compete for the attention of investors who have re-allocated their thesis toward foundation models and infrastructure. You're finding the cohort of investors who are specifically active in your sector, at your stage, right now - and going deep with them.

On the deals we're currently running at Breakout, the investors closing are vertical specialists. Fintech infrastructure, defense tech, cybersecurity, healthcare - sectors where AI is a feature of the business, not the entire pitch, and where the investors still have dry powder and active mandates.

Broad-based generalists have largely moved upmarket or re-oriented around AI. The selective ones still writing checks in non-AI categories have very specific thesis criteria and they're less visible.

If you're raising in a non-AI sector today, your pitch needs to be anchored in unit economics and defensibility - not TAM slides and growth projections. Investors who are still active outside the AI mega-cycle are underwriting businesses, not narratives.

• What's your retention?

• What's your payback period?

• What makes this hard to replicate?

Those are the questions coming up in every diligence call we're sitting with right now, and how you can survive the AI boom of VC, if you’re not building directly in the space.

As always, I hope this is useful for you as you’re going about your fundraising round and trying to find the right investors.

Thanks for reading, and let me know if I can be of any assistance.

Ryan Bryden 
Breakout Capital Group
breakoutcapitalgroup.com

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