Pulse News

**The Coming AI Down Rounds; Plus, Always Be Raising**

By Natasha Mascarenhas

Feb 27, 2025, 1:40pm PST

You could sum up the vibe at this year's Upfront Summit, the Los Angeles gathering of venture capitalists and the limited partners who back them, as: always be raising. Followed closely by, beware a correction in artificial intelligence startups.

Mark Suster, a partner at Upfront Ventures, kicked off the event by shouting out fund managers who were in the market for new money, such as early-stage investor Crosscut Ventures. Chelsea Clinton noted that she was looking to raise Metrodora Ventures' third fund next year, targeting $50 million—and welcomed limited partners to approach her after her fireside chat.

Attending Upfront is a way for emerging fund managers to announce that they're on the fundraising trail. Even so, it felt like there were more new fund managers and those who had recently left their name brand firms than usual this year. Privately, some investors wondered if starting a fund is a new "soft landing" for people pushed out of their firms. In past years they may have become an adviser to a startup, instead.

In addition to fundraising chatter, a number of venture capitalists warned about a correction, or at least a humbling in artificial intelligence. Vinod Khosla, founder of Khosla Ventures and one of the earliest backers of OpenAI, described what he called the "great greed phase" rippling across venture capital. Investors are being "indiscriminate" and "greedy" when it comes to backing AI startups, Khosla said, and many of those startups will eventually have to raise down rounds, or financings at lower valuations than their prior round.

"More than 80% [of AI companies] will be losing money for investors five years from now," he said. Sarah Guo, founder of AI-focused early-stage firm Conviction, echoed this sentiment. "There's not room for infinite $100 billion businesses in these markets," she said. There will be winners. But "will investors lose money? Absolutely."

For now, few investors seem worried about losing money. Just over the past few weeks, Anthropic closed a financing at over a $60 billion valuation and OpenAI has been in talks to raise at a $300 billion valuation including the investment. While both are generating billions of dollars in revenue, investors have been choking over the potential valuations of some very new startups, which have no revenue or even a public product. For instance, Thinking Machines Lab, founded by former OpenAI Chief Technology Officer Mira Murati, is in talks with potential investors to raise roughly $1 billion, and it's aiming to raise at a $9 billion valuation, according to Business Insider. It hasn't generated any revenue.

Venture capital is at a crossroads. Reporters Cory Weinberg and Natasha Mascarenhas tell you what's coming next, who's winning—and who's losing—in the high-stakes world of startup investing.

That report followed a similar jaw-dropper, that former OpenAI co-founder Ilya Sutskever's Safe Superintelligence Inc. was in talks to raise at a $30 billion valuation. Even in the zero-interest-rate funding boom, startups awarded such prices had to show at least hundreds of millions of dollars in revenue and at least a product!

Raising money at a "$30 billion valuation, pre-product, pre-revenue... I don't even know what the investment memo could say that could justify that," said Deven Parekh, a managing director at Insight Partners. Speaking to the room full of general partners and limited partners, Parekh said that the next 10 years in venture is going to be "a grind." "We all have a lot of assets that we paid high prices for that we really got to focus on making work... and we have to be intellectually honest about that," he said.

Of course, there was plenty of optimism on AI from speakers, many of whom had been investing in little besides AI startups for the past year. The eventual failures and disappointments are problems for another year. The mood, for the most part, was excitement about the opportunity for AI to speed startups' path to meaningful revenue milestones. "AI is the exact type of event that every founder and every LP and GP dream about," said Bill Gurley, the famed former Benchmark general partner. "This disruption or dislocation seems so powerful."

Still, it was clear that many investors and their backers remembered the lessons of the most recent boom-bust cycle. The first day of the conference ended with a glitzy party in the bowels of Intuit Dome. One attendee remarked that cash apparently is still king.

Natasha Mascarenhas is a reporter at The Information, based in San Francisco, who covers venture capital and startups. She can be reached at natasha@theinformation.com, or on Signal at +1 925 271 0912. She is on Twitter at @nmasc_