Big AI bets divide venture capital, leaving smaller funds behind

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeInvestorBig AI bets divide venture capital, leaving smaller funds behindInvestors want out of prior bets, proof of returns and exposure to top-tier AI companies, even amid wild swings in the marketAuthor of the article:Yazhou Sun and Aisha S Gani You can save this article by registering for free here. Or sign-in if you have an account.Traders work on the floor of the New York Stock Exchange (NYSE) at the closing bell, in New York on July 24, 2026. Photo by ANGELA WEISS / AFP via Getty ImagesEarly last year, venture capital firm Felix Capital set out to raise US$600 million for its next fund, touting previous investments in fitness-machine maker Peloton Interactive Inc. and food-delivery service Deliveroo. But investors want to see returns from older funds before they commit new capital, and Felix is still US$150 million short of its target, according to a person with knowledge of the matter.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountIt’s emblematic of broader struggles across venture capital. Fund investors, known as limited partners, want out of prior bets, proof of returns and exposure to top-tier artificial intelligence companies, even amid wild swings in the market. That’s putting pressure on smaller, sector-focused managers that hold stakes in a roster of startups with few routes to a blockbuster public offering or sale.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try again“The environment is harder, most limited partners have liquidity constraints, so it’s prudent for general partners to increase the investment period of their current funds, and plan more time for fundraising,” said Frederic Court, founder and investor at Felix Capital.German venture capital firm 468 Capital began raising a US$1 billion growth fund two years ago, going head-to-head with the largest European tech investors. But the firm has shelved those plans, citing a lack of interest from limited partners, and will focus on raising a smaller early-stage fund later this year, according to people with knowledge of the matter, who asked not to be identified discussing private information.Northzone, a 30-year-old European venture firm managing $3 billion of assets, is pulling together smaller checks from a wider-than-usual pool of investors for its newest fund, the people said.Representatives for 468 Capital and Northzone declined to comment.The rush to AI has warped the venture capital market, with money flowing disproportionately to a handful of top-tier investors that backed the technology early.Five companies — OpenAI, Anthropic PBC, Elon Musk’s xAI, Alphabet Inc.’s driverless car company Waymo and data center company Nscale — accounted for 78 per cent of all venture deal value in the first quarter, according to PitchBook data. The initial public offering of SpaceX, which now owns xAI, accounted for about 73 per cent of all exit value during the period.The big investors that got into those companies, such as Founders Fund and Andreessen Horowitz, are at the top of the food chain.But “smaller, emerging managers just can’t compete for the best AI companies,” said David Clark, Chief Investment Officer of VenCap International Plc, which has invested in roughly a dozen VC funds, including Andreessen Horowitz. “If you’re going to lead a seed round, you have to write a US$10 million or US$15 million check,” he said. “If you’re a US$100 million fund, you can’t do that.”This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Emerging firms — those that have formed three or fewer funds — raised about US$62 billion last year and are on track to raise a similar amount this year, according to data from PitchBook. That’s about a 60 per cent drop compared with the US$163.4 billion they raised during the pandemic funding peak in 2022. Experienced managers reeled in US$84 billion last year, a third of what they raised in 2022.And fund performance is becoming more uneven.The gap between the best- and worst-performers has more than doubled for 2024 vintages compared with those formed from 2017 to 2021, according to Carta data. The top 10 per cent of 2024 funds gained 49.3 per cent in the fourth quarter of last year, while the bottom quartile lost 17.4 per cent, the data show.“The general take is people want to reward performance,” said Patrick Murphy, a founder of Tapestry VC. “I think LPs want to reward people who saw opportunities for liquidity and took them, thankfully we’re in that group.”Fin, an early investment of Tapestry’s, recently agreed to an acquisition by Salesforce Inc. for US$3.6 billion, helping the VC firm launch its third fund with $80 million. The company develops AI-powered customer service agents.Zombie unicornsThe shift to AI is impacting a generation of startups in other sectors that attained valuations of US$1 billion or more in the last five years, but now have limited options to exit and return cash to investors. The industry calls these “zombiecorns” — companies that don’t have the growth to support their valuations and are struggling to attract buyers or to list.The effect is particularly visible among enterprise software startups, which investors fear could be wiped out by tools from OpenAI, Google and Anthropic.Personio, a German HR software company last valued at US$8.5 billion in 2022, is expected to raise a new round at about half that valuation, according to people familiar with the matter.Financial technology, which ballooned during and after the COVID-19 pandemic as customers moved to digital banking and shopping online, has also bifurcated.During the peak years, public listings for companies such as Coinbase Global Inc., trading platform Robinhood Markets Inc. and others offered investors a blueprint for successful exits and drove funding to emerging players. Funding for fintech startups hit more than US$100 billion globally in 2021, according to PitchBook.Only a handful are still thriving — mostly those that can prove scale in the sector. Stripe Inc., which helps businesses accept payments online, has reached a US$159 billion valuation. It processed US$1.9 trillion of payments in 2025, up 34 per cent from the prior year. Digital bank Revolut Ltd. has won the crown for Europe’s most valuable private startup, is profitable and plans to list some time in the next few years.“The neobank, underbanked story of 2021 is not going to give the story of a Databricks or Stripe today,” according to Kyle Stanford, director of U.S. venture capital research at PitchBook.Revolut’s U.K. rival Monzo Bank Ltd. weighed a secondary share sale last year but has since dropped the effort, according to people with knowledge of the matter. Despite being profitable, the company is a fraction of Revolut’s US$115 billion valuation.Another neobank, Atom Bank, has failed to attract suitable bids for a buyout, people with knowledge of the matter said.Representatives for Monzo and Atom Bank declined to comment.Fintech investors are accordingly feeling the pain. In February, a listed U.K. venture fund, Chrysalis Investments Ltd., said it was winding down after years of under-performance that forced the fund to write down the value of its portfolio. Chrysalis wrote down stakes in companies including U.K. digital bank Starling Bank and insurance technology company Wefox.Another U.K. fund, Augmentum, which backed multiple fintech unicorns including digital lender Zopa Bank, was taken private at a roughly 30 per cent discount to the net value of its assets as of September, after performance fees.“You can’t always pick winners, and absolutely, we are in the business of taking calculated risk,” Tim Levene, Augmentum’s chief executive officer, said on an earnings call earlier this year.Without new cash or a path to exit, a generation of fintechs will need to limp along on their own until they’re acquired at a discount, PitchBook’s Stanford said.Buyers are becoming more selective, and the route to IPO is tougher, said Gulsah Wilke, a partner at venture firm DN Capital. Founders and investors may have to accept that “the biggest exit may never materialize.”Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.