AI Boom Reshapes Startup Landscape Leaving Pre-ChatGPT Unicorns Stranded

Nearly half of America's 857 unicorn startups, valued at $1 billion or more, have not raised fresh funding in the past three years, according to PitchBook data. The AI boom, which has funneled over $250 billion into companies like OpenAI and Anthropic, is reshaping the startup landscape, leaving many pre-ChatGPT unicorns with significantly lower valuations and struggling for new investments.

Valuations Plummet as AI Takes Center Stage

Startups that last raised funds in 2021 are now worth 68% less on average, while those that last raised in 2022 have seen their valuations decline by 52%. More than 220 companies, once considered unicorns, are now deemed 'fallen unicorns,' including well-known brands such as Glossier, Savage X Fenty, AG1, and The Farmer's Dog.

"The ChatGPT moment was when people said, 'Holy smokes, the next generation of entrepreneurs, their coding language is spoken English,'" says Samir Kaul, a partner at Khosla Ventures, an early backer of OpenAI. "Now you're seeing 50 engineers do what it would've taken 500 engineers to do five years ago. We had to completely reshuffle how we valued these companies."

Pre-AI Startups Struggle to Compete

Many of these pre-AI startups, built during a period of cheap money and pandemic-boosted demand, are now facing significant challenges. Their inflated valuations and outdated technology make them unattractive to venture capitalists, who are now focused on AI-first companies.

"A lot of those companies are pre-AI, not just in their cost structure, but also in their products," says Immad Akhund, CEO of Mercury, a company providing banking services to a third of early-stage U.S. venture-backed firms. "They're definitely in a difficult spot. All the attention's on AI, so if you're not an AI-first company, you need really strong numbers to raise."

Industry Context and Implications

The shift in focus towards AI has also impacted public software companies like Salesforce, ServiceNow, and Workday, whose shares have been hammered due to the threat from artificial intelligence. In the private markets, the AI boom has left hundreds of startups built before ChatGPT's arrival in 2022 stranded, effectively cut off from venture funding.

As the AI revolution continues to gain momentum, the pressure on pre-ChatGPT unicorns to adapt and innovate is mounting. The future outlook for these companies remains uncertain, with many needing to reevaluate their business models and strategies to stay relevant in the rapidly evolving tech landscape.

References

• 'Disrupted or dead': AI is crushing a generation of startups built before ChatGPT