Introduction: The Venture Market Can Look Strong and Still Be Hard
The most dangerous thing a founder can do is misunderstand the market.
Not because market timing is everything.
Great founders can build in difficult markets.
But because wrong market interpretation creates bad decisions.
If a founder thinks the market is wide open, they may overhire.
If they think every AI startup is fundable, they may raise with a weak story.
If they read headline VC totals without looking beneath them, they may assume investors are less selective than they really are.
If they believe mega-rounds mean Seed and Series A capital is easy, they may delay fundraising too long.
If they see record venture numbers and ignore declining deal volume, they may miss the real signal.
That is why EY’s article “Massive AI deal supercharges VC results in Q1 2025” matters.
EY showed that U.S. VC-backed companies raised US$80.1 billion in Q1 2025, a 28% quarter-over-quarter increase and the strongest quarter since Q1 2022.
That sounds like a strong venture rebound.
But EY’s deeper point was the opposite.
Before a record US$40 billion AI deal was announced on March 31, venture investment had been on pace to fall 36% from Q4 2024.
One transaction changed the entire quarter.
That is not a normal recovery.
That is concentration.
This is the defining feature of the modern venture market.
One company can change the numbers.
One sector can carry the market.
One geography can absorb most of the capital.
One stage can look healthy while another freezes.
One AI infrastructure round can make the whole ecosystem look better than it feels for ordinary founders.
The venture market did not die.
But it became more uneven.
This article uses EY’s Q1 2025 analysis as the starting point, then expands it into a 2026 founder, investor, LP, and ecosystem playbook.
The message is clear:
The headline market is not your market.
Your market is your stage, your category, your geography, your metrics, your investor universe, your liquidity path, and your ability to prove that your company deserves capital in a selective environment.
1. The Headline Said Recovery. The Details Said Concentration.
EY reported US$80.1 billion in U.S. VC funding in Q1 2025.
That was a strong number.
It represented a 28% increase over Q4 2024.
It was the strongest quarter since Q1 2022.
But the real story was the US$40 billion AI deal that changed the entire quarter.
Without that transaction, EY said VC investment would have declined by 36%.
This is the most important lesson for founders:
A market can look up and still be down underneath.
The top-line number can hide weakness.
One AI company can make the quarter look strong while most founders still face slower processes, fewer term sheets, tighter valuations, and harder follow-on rounds.
This is why founders should not use total VC dollars as the main signal.
They should ask:
How many deals were completed?
Which stages are raising?
Which sectors are receiving capital?
How much of the total came from the top five deals?
Are new investors entering rounds?
Are insiders carrying companies?
Are IPOs reopening?
Are M&A exits happening?
Are funds raising new capital?
Is my category actually investable?
Capital totals matter.
But concentration tells the truth.
2. Deal Volume Matters More Than Founders Think
EY said deal volumes were off from the prior quarter.
That is crucial.
If total dollars rise while deal count falls, the market is not broadening.
It is concentrating.
For founders, deal count is often more useful than deal value.
A higher total funding number may simply mean one late-stage company raised a huge round.
A higher deal count suggests more founders are actually getting funded.
When deal count declines, it usually means investors are becoming more selective.
They may still write large checks, but only for companies they consider exceptional.
That means the average founder’s fundraising environment may be harder even while the total market appears stronger.
This is especially important at Seed, Series A, and Series B.
A founder should ask:
Are more companies at my stage closing rounds?
Are rounds taking longer?
Are valuations rising only for AI companies?
Are non-AI companies getting funded?
Are investors leading new deals or only following insiders?
Are down rounds still common?
Are bridge rounds replacing priced rounds?
Deal volume is the founder’s reality check.
3. AI Did Not Reopen the Whole Market. It Repriced the Top of the Market.
EY reported that AI deals bolstered VC investment in Q1 2025, just as they had in Q4 2024.
But the composition changed.
In Q4 2024, the top four deals were AI-driven and raised US$26.6 billion.
In Q1 2025, excluding the US$40 billion transaction, five AI deals in the top ten raised US$8.6 billion.
This shows that AI was not only a sector trend.
It became the center of market gravity.
But founders should be careful.
AI funding does not mean every AI startup can raise.
The market is funding specific types of AI companies:
Foundation models.
AI infrastructure.
AI compute.
Enterprise AI platforms.
AI-native software with real workflow ownership.
AI developer tools.
AI security.
AI hardware and chips.
Robotics and automation.
AI companies with large customers, deep teams, and high strategic relevance.
That is very different from funding every startup that adds an AI feature.
The new investor question is not:
Do you use AI?
The real question is:
Does AI create durable business value that customers will pay for?
If the answer is weak, the company may not benefit from the AI funding wave.
4. AI Infrastructure Is Still Being Built
EY’s outlook said the underlying infrastructure for AI still needs to be built out, even as investors begin to focus more on the application layer.
This is one of the most important market signals.
AI is not only a software trend.
It is an infrastructure buildout.
It requires:
Data centers.
Compute.
GPUs.
Networking.
Energy.
Cooling.
Cloud platforms.
Model deployment tools.
Security.
Data infrastructure.
Monitoring.
AI governance.
Developer tooling.
Inference optimization.
Storage.
Edge computing.
The infrastructure layer is expensive and strategic.
That is why so much capital flows into it.
But EY’s comment about the application layer is equally important.
Once infrastructure becomes available, the next wave of venture opportunity moves into applications:
AI for finance.
AI for healthcare.
AI for legal work.
AI for cybersecurity.
AI for procurement.
AI for logistics.
AI for customer support.
AI for compliance.
AI for manufacturing.
AI for construction.
AI for insurance.
AI for education.
AI for government services.
AI for software development.
The founder opportunity depends on where the company sits in the stack.
Infrastructure companies may need enormous capital and strategic partners.
Application companies may need workflow expertise, proprietary data, distribution, and measurable ROI.
A founder should know which game they are playing.
5. Information Technology Dominated Because AI Dominated
EY reported that information technology represented 74% of U.S. VC investment in Q1 2025 and accounted for seven of the top ten deals.
Even without the US$40 billion deal, IT would have represented nearly 50% of the investment.
This shows how much AI has pulled the venture market back toward technology.
But this is not just “software is eating the world” again.
It is more specific.
AI is reshaping the technology category itself.
Old software companies sold tools.
AI-native companies may sell labor automation, decision augmentation, workflow transformation, and infrastructure leverage.
This changes how investors evaluate companies.
A normal SaaS company may be compared against AI-native alternatives.
A workflow tool may need to prove why it will not become a feature inside Microsoft, Salesforce, ServiceNow, Adobe, or another incumbent platform.
A vertical software company may need to explain how AI improves adoption, margins, or customer outcomes.
A developer tool company may need to explain how coding agents change demand.
The technology sector is not simply strong.
It is being rewritten.
6. Health Care and Industrial Goods Still Matter, but They Need Different Proof
EY reported that health care and industrial goods and materials posted strong quarter-over-quarter growth in Q1 2025, with health care up 15% and industrial goods and materials up 3%.
This matters because the venture market is not only AI software.
Health care remains a major opportunity.
Industrial technology remains a major opportunity.
But these sectors require different kinds of proof.
Health care founders must prove:
Clinical need.
Regulatory path.
Reimbursement logic.
Provider adoption.
Payer value.
Workflow integration.
Evidence quality.
Patient safety.
Health care AI founders must prove more than model accuracy. They must prove clinical utility and economic value.
Industrial founders must prove:
Operational ROI.
Reliability.
Deployment in real environments.
Integration with existing systems.
Safety.
Maintenance.
Hardware or field performance.
Customer payback.
Industrial AI is often less glamorous than foundation models, but it can produce durable companies because it solves expensive problems.
Founders in these sectors should not imitate pure software fundraising narratives.
They should raise around milestones, customer proof, and deployment evidence.
7. Business and Financial Services Weakness Shows That Sector Rotation Is Real
EY reported that business and financial services showed further weakness in Q1 2025, with only eight US$100 million-plus deals compared with 20 in the prior quarter.
This is a warning.
Venture capital is not a single market.
Sectors rotate.
Some categories become crowded.
Some become overfunded.
Some lose investor confidence.
Some wait for regulatory clarity.
Some suffer from weak exits.
Some become less attractive because AI changes cost structure or customer demand.
Business and financial services still contain major opportunities, including fintech infrastructure, compliance automation, payments, wealthtech, insurance technology, embedded finance, and AI-enabled operations.
But investors became more selective.
The founder lesson:
Do not assume your sector remains fundable because it was hot three years ago.
Markets change.
Fintech in 2021 is not fintech in 2025.
SaaS in 2021 is not SaaS in 2026.
Consumer in 2020 is not consumer in 2026.
Climate in 2021 is not climate in 2026.
A founder must understand the current investor narrative around the category.
Then either align with it or deliberately challenge it with evidence.
8. The Bay Area Is Back at the Center Because AI Re-Concentrated Capital
EY reported that the Bay Area accounted for nearly 70% of all U.S. VC investment in Q1 2025, driven by activity in IT.
This is a major geographic signal.
For years, people argued that startup geography had been permanently decentralized.
Remote work changed hiring.
Startups could form anywhere.
Investors were willing to write checks over Zoom.
Many ecosystems grew outside Silicon Valley.
That was partly true.
But AI has re-concentrated capital.
Why?
Because frontier AI depends on dense networks:
AI researchers.
Machine learning engineers.
Founders.
Big Tech alumni.
Venture capitalists.
Compute providers.
Model labs.
Infrastructure startups.
Enterprise buyers.
Developer communities.
Universities.
Angel networks.
The Bay Area has many of these.
That does not mean founders outside the Bay Area cannot win.
They can.
But it means geography still matters in category-specific ways.
If you are building a foundation model company, AI infrastructure company, or frontier developer tool company, being close to the Bay Area ecosystem may help.
If you are building health care AI, Boston may matter.
If you are building fintech, New York may matter.
If you are building energy or industrial technology, customer geography may matter more.
If you are building Canadian AI, you may need Toronto, Montreal, Waterloo, Vancouver, plus U.S. investor access.
The lesson is not “move to San Francisco.”
The lesson is “know which ecosystem gives your category unfair advantage.”
9. Austin’s Rise Shows That Secondary Hubs Can Win When They Have Category Fit
EY noted that Austin moved into third place in Q1 2025, ahead of Boston and Seattle, helped by two top ten deals.
Austin’s rise is not random.
It has become a serious technology and startup market because of:
Talent migration.
Enterprise software.
AI activity.
Semiconductors.
Hardware.
Defense and space proximity.
Energy and industrial connections.
Texas growth.
Lower operating costs than some coastal hubs.
A strong founder and investor community.
This matters because secondary hubs can win when they combine talent, capital, customers, and sector fit.
The future of venture geography will not be fully decentralized.
It will be multi-hub.
San Francisco will dominate some categories.
New York will dominate others.
Boston will dominate others.
Austin, Seattle, Los Angeles, Miami, Toronto, Montreal, Vancouver, Waterloo, Atlanta, Chicago, and other hubs will each have strengths.
Founders should choose geography strategically.
Where are the investors who understand your company?
Where are the customers?
Where is the talent?
Where are the acquirers?
Where is the regulatory expertise?
Where is the industry ecosystem?
Location is not destiny.
But ecosystem fit matters.
10. Fund Formation Weakness Is a Hidden Founder Risk
EY reported that significant dry powder remained on the sidelines, but fund formation just topped US$10 billion for Q1 2025, the lowest level since Q3 2018.
This is one of the most important points in the article.
Founders often focus on startup funding.
They forget that VC funds also need to raise.
If funds are not raising, future startup funding becomes more constrained.
Fund formation affects:
How much fresh capital investors have.
Whether emerging managers survive.
How much follow-on support exists.
Whether investors can lead new rounds.
Whether funds reserve capital for existing portfolio companies.
Whether non-consensus founders get funded.
A market with dry powder can still be difficult if that dry powder is concentrated, cautious, or reserved for existing portfolio companies.
A market with weak fund formation can create delayed pressure.
Even if today’s investors have money, tomorrow’s new funds may be smaller or fewer.
Founders should understand investor capital health.
Ask:
Has this fund raised recently?
Does it have reserves?
Can it lead?
Is it still making new investments?
Is it saving capital for existing companies?
Is the partner able to write checks?
Is the firm fundraising itself?
Investor fundraising affects founder fundraising.
11. Follow-On Financing Is the Real Test
EY said investors were reluctant to continue financing companies in follow-on rounds without a clear path to liquidity, especially those that had not raised since 2021.
This may be the most practical warning for founders.
The hardest moment is not always the first round.
It is the next round.
Many companies raised in 2021 or 2022 at high valuations.
Some cut burn and grew into the valuation.
Many did not.
When they returned to market, investors asked harder questions:
Why has growth slowed?
Why is valuation still high?
Why should new investors price above the last round?
Why is profitability still far away?
Why did insiders not support the round?
Why has the company not exited?
Why is customer retention weak?
Why is AI threatening the business?
Why should we fund this instead of a new AI-native competitor?
Follow-on financing is where the market reveals what it really thinks.
Founders must build toward the next round from the current round.
Do not raise money without knowing what milestone will make the next investor believe.
12. Liquidity Is Still the Market’s Core Problem
EY said follow-on reluctance would continue until more companies moved from private to public markets.
That is a liquidity point.
Venture capital depends on exits.
IPO.
M&A.
Secondaries.
Strategic acquisitions.
Tender offers.
When companies do not exit, capital does not recycle.
Investors mark portfolios on paper, but LPs need cash.
Without distributions, LPs become cautious.
When LPs become cautious, VC fundraising weakens.
When VC fundraising weakens, founders feel it.
This is why liquidity matters even to early-stage founders.
A Seed founder may think IPO markets are irrelevant.
But weak IPO markets can reduce LP distributions, reduce fund formation, reduce venture appetite, and reduce follow-on capital years later.
The venture ecosystem is connected.
Liquidity is not just an exit-stage problem.
It is a system-wide problem.
13. The 2026 Market Confirms the Same Pattern at Larger Scale
EY’s Q1 2025 warning became even more relevant in Q1 2026.
KPMG reported that global VC investment reached a record US$330.9 billion in Q1 2026, more than doubling from Q4 2025.
That sounds like a boom.
But KPMG also emphasized that a small number of multibillion-dollar AI rounds significantly skewed global totals.
PitchBook-NVCA reported US$267.2 billion in U.S. VC deal value and US$347.3 billion in exit value in Q1 2026.
But excluding the five largest deals and exits would reduce those figures by 73.2% and 86.6%.
Carta reported that more than 60% of funding on its platform went to AI in Q1 2026, creating a large valuation gap between AI and non-AI startups.
This is the same story EY identified, just bigger.
One or a handful of AI deals can make the market look extraordinary.
The underlying founder market may remain disciplined, selective, and uneven.
14. The Market Is Now Split Into Three Layers
Founders should think of the current venture market in three layers.
Layer one: AI giants and category leaders
These companies can raise enormous rounds because investors believe they may become infrastructure, platform, or market-defining companies.
Layer two: strong startups with real proof
These companies can raise, but they must show strong metrics, customer traction, AI relevance where applicable, capital efficiency, and credible next-stage milestones.
Layer three: weak or unclear companies
These companies struggle. They may need bridge rounds, down rounds, acquisitions, pivots, shutdowns, or profitability plans.
The mistake is assuming layer one conditions apply to layer two or three.
They do not.
A US$40 billion AI deal does not mean your Seed round is easy.
A record U.S. VC quarter does not mean your Series B will close.
A hot AI market does not mean your AI wrapper is defensible.
A strong Bay Area quarter does not mean your region has capital depth.
The new venture market is layered.
Founders must know which layer they occupy.
15. The Application Layer Will Be the Next Brutal Competition Zone
EY noted that investors are beginning to focus more on the AI application layer.
This is where many founders will build.
It is also where many will fail.
The application layer is attractive because it is closer to customers.
AI for sales.
AI for legal.
AI for finance.
AI for HR.
AI for medicine.
AI for logistics.
AI for procurement.
AI for compliance.
AI for education.
AI for construction.
AI for insurance.
AI for customer service.
AI for cybersecurity.
But the application layer is crowded.
The barriers are not always obvious.
If the startup only uses a foundation model with a thin interface, it may be copied.
If the product does not own a workflow, it may become a feature.
If the company lacks proprietary data, it may struggle to defend.
If the buyer does not see ROI, it may not renew.
If the incumbent platform adds similar functionality, the startup may be squeezed.
The best AI application companies will have:
Workflow ownership.
Data advantage.
Deep domain expertise.
Clear ROI.
Integration into systems of record.
High switching costs.
Trust and compliance.
Distribution.
Customer-specific learning loops.
Founders should not build generic AI tools.
They should build AI that owns a painful workflow.
16. “AI-Influenced” Is Not the Same as AI-Native
EY said IT investment was dominated by companies with significant AI influence.
That phrase is useful.
Many companies are now AI-influenced.
But not all are AI-native.
AI-influenced means AI affects the company.
AI-native means AI is structurally central to the product, operating model, customer value, or economics.
A SaaS company adding AI summaries may be AI-influenced.
A company automating an entire claims workflow with proprietary insurance data may be AI-native.
A hiring platform adding AI resume screening may be AI-influenced.
A workforce automation company replacing a full recruiter workflow with measurable cost savings may be AI-native.
A health app adding a chatbot may be AI-influenced.
A regulated clinical workflow tool with validated decision support may be AI-native.
Investors will increasingly distinguish between the two.
Founders should be honest.
If AI is a feature, say how it improves the product.
If AI is the company, prove why it creates durable advantage.
17. Mega-Rounds Are Not Always Good for the Ecosystem
Mega-rounds can be exciting.
They signal ambition.
They help companies scale quickly.
They attract talent.
They support infrastructure buildout.
They create headlines.
But mega-rounds can also distort ecosystems.
They can inflate talent costs.
They can absorb investor attention.
They can make fundraising expectations unrealistic.
They can create valuation pressure.
They can crowd out other sectors.
They can make smaller but important companies look less attractive.
They can make founders compare themselves to companies playing a totally different game.
EY’s Q1 2025 article shows this clearly.
A single deal changed the whole market’s appearance.
That can be good for the company that raised.
It can be misleading for everyone else.
Mega-rounds are not a market.
They are a subset of a market.
Founders should not let mega-round headlines distort their operating plan.
18. What Founders Should Track Instead of Headline VC Numbers
Founders should track better signals.
Stage-specific deal count
Are Seed, Series A, Series B, or growth rounds happening?
Median round size
Averages can be distorted by mega-rounds.
Valuation by sector
AI and non-AI valuations may diverge sharply.
Deal timing
Are rounds taking longer?
Insider versus new investor participation
Are new investors leading or are insiders bridging?
Fund formation
Are VCs raising new funds?
Exit activity
Are IPOs, M&A, and secondaries providing liquidity?
Down-round frequency
Are companies being repriced?
Sector concentration
How much capital is going to one category?
Geographic concentration
Where is capital actually flowing?
These signals tell founders what the market really looks like.
19. The Founder’s Fundraising Strategy Must Match the New Market
In this market, founders need more precision.
A fundraising strategy should include:
Exact milestone being funded.
Target investor list by sector and stage.
Clear AI narrative if relevant.
Unit economics.
Revenue quality.
Customer proof.
Competitive map.
Use of proceeds.
Runway plan.
Valuation logic.
Backup financing path.
Strategic investor map.
M&A awareness.
Data room readiness.
A founder should not enter the market casually.
The market is too selective.
Every investor meeting should answer the same question:
Why should this investor believe this company can reach the next meaningful milestone?
If the answer is vague, the round will be hard.
20. AI Founders Need to Explain Gross Margin and Compute
AI founders have a specific burden.
Investors now know that AI can be expensive.
They will ask:
What is the cost of inference?
What is the cost of training?
What cloud or compute commitments exist?
Can margins improve over time?
Can usage scale profitably?
Can customers pay for output?
Will model costs fall enough?
Does the company depend on one model provider?
Can the product work with multiple models?
Does the company have proprietary data?
Does the company improve with usage?
What happens if foundation models become cheaper?
An AI founder who cannot answer these questions may be treated like a demo, not a business.
AI excitement helps open the door.
Economics keeps the investor in the room.
21. Non-AI Founders Need to Show Why They Still Matter
Non-AI founders should not panic.
Not every company needs to be an AI company.
But every company needs an AI-aware strategy.
A logistics startup should know how AI affects dispatch, routing, pricing, forecasting, and customer service.
A healthtech startup should know how AI affects clinical workflow, documentation, diagnostics, and administration.
A fintech startup should know how AI affects fraud, compliance, underwriting, customer support, and personalization.
A SaaS startup should know how AI affects product value, support cost, and workflow automation.
A consumer startup should know how AI affects personalization, content, commerce, and customer acquisition.
Investors may ask:
Why will AI not commoditize this?
How are you using AI internally?
Can your team operate leaner because of AI?
Does AI improve your margin?
Does AI improve your product?
Even if the startup is not AI-first, AI should shape its operating model.
22. The New Market Rewards Capital Efficiency Again
During the boom, many founders treated capital as acceleration fuel.
Now investors ask whether the engine is efficient.
They look at:
Burn multiple.
Gross margin.
ARR per employee.
Revenue per employee.
CAC payback.
Retention.
Net revenue retention.
Payback period.
Runway.
Hiring discipline.
Marketing efficiency.
Customer concentration.
Operating leverage.
AI raises the bar further.
If AI allows small teams to build more, investors may question why the company needs so many employees.
If AI automates support, investors may question high support costs.
If AI speeds development, investors may question slow product cycles.
Capital efficiency is not about being cheap.
It is about being deliberate.
The founder must show that each dollar increases company value.
23. Investors Are Still Working Through the Backlog
EY said venture capitalists are working through a backlog as they carefully evaluate deals.
That backlog is one of the defining post-boom issues.
Many companies raised in 2021 or 2022 and delayed coming back to market.
Some extended runway through cuts.
Some raised bridges.
Some used debt.
Some waited for markets to improve.
Some are still carrying old valuations.
This creates a crowded follow-on market.
Investors must decide:
Which existing companies deserve support?
Which should be sold?
Which should be written down?
Which should be allowed to fail?
Which new companies are more attractive than older portfolio companies?
Founders raising into this environment must understand that investors have competing obligations.
A VC may like your startup and still be constrained by portfolio reserves.
A VC may have dry powder but not be actively leading new deals.
A VC may be saving capital for existing companies.
This is why founder diligence on investors matters.
24. Emerging Managers Matter, but Fund Formation Weakness Hurts Them
Weak fund formation affects emerging managers most.
Established firms often have brand, track record, institutional LP relationships, and access to winners.
Emerging managers have a harder time raising when LPs are cautious.
This matters because emerging managers often fund:
Non-consensus founders.
Regional ecosystems.
Women founders.
Immigrant founders.
Underestimated founders.
Pre-seed technical teams.
Niche categories.
Early climate, health, or deeptech ideas.
If emerging managers struggle, the startup market becomes narrower.
This is a hidden consequence of weak VC fundraising.
Founders outside the obvious AI mega-round lane may lose important capital sources.
LPs should understand this.
A healthy venture ecosystem needs large established funds and emerging specialists.
25. Canada Shows What Happens When Capital Concentrates Too Much
Canada’s venture market shows a related pattern.
BDC reported that Canadian VC investment held near CAD $8 billion in 2025, but fewer deals are getting done and a small number of transactions are capturing a growing share of capital.
RBCx reported that Canadian VC firms raised just over CAD $2 billion in 2025, while emerging managers raised only CAD $249 million and the five largest funds captured about 83% of capital raised.
CVCA reported that Q1 2026 saw CAD $936.3 million invested across 104 Canadian VC transactions, the lowest quarterly deal count since 2017.
This is the Canadian version of the EY lesson.
Headline capital can hide structural weakness.
Canada has strong AI talent, universities, cleantech, fintech, healthtech, deeptech, and software founders.
But it faces:
Capital concentration.
Weak emerging manager fundraising.
Growth-stage gaps.
Foreign late-stage dependence.
Exit constraints.
Regional imbalance.
AI concentration.
Canadian founders should not assume global AI mega-rounds mean local capital is available.
They need a global capital strategy, but also a domestic value-capture strategy.
26. Canada’s AI Opportunity Is Real, but So Is the Ownership Risk
Canada helped create the modern AI era through world-class research in Toronto, Montreal, Edmonton, Waterloo, and other hubs.
But AI capital is heavily concentrated in the United States.
That creates a risk.
Canada can produce talent and ideas while the largest company value gets captured elsewhere.
BDC has warned that Canada is generating innovation but not consistently capturing value.
This matters for founders and policymakers.
Canadian AI founders need:
U.S. customer access.
Global investor relationships.
Domestic growth capital.
Canadian corporate customers.
Compute access.
Public procurement.
Stronger university commercialization.
Pension fund engagement.
AI infrastructure.
Exit pathways.
The goal is not to avoid foreign capital.
Foreign capital can help.
The goal is to avoid becoming only a talent and research supplier.
Canada needs AI companies that scale and retain meaningful value.
27. What USA Founders Should Learn
U.S. founders have access to the deepest venture market in the world.
But EY’s analysis shows that even the U.S. market can be misleading.
A founder should learn:
Do not confuse mega-rounds with broad market health.
Do not assume AI funding applies to all AI companies.
Do not ignore deal count.
Do not underestimate liquidity constraints.
Do not assume investors will support follow-on rounds without proof.
Do not rely on 2021 valuation logic.
Do not ignore fund formation.
Do not treat geography as irrelevant.
The U.S. market has capital.
But it is not equally distributed.
Founders still need discipline.
28. What Investors Should Learn
Investors should use EY’s article as a reminder to look beneath totals.
They should ask:
How much of the market is one deal?
How much is AI concentration?
Are deals broadening or narrowing?
Are founders raising at sustainable valuations?
Is fund formation healthy?
Are exits returning?
Are follow-on rounds financed by new investors or insiders?
Are companies becoming more efficient?
Are non-AI categories being unfairly neglected?
Are application-layer AI startups truly defensible?
The best investors will not be fooled by headline heat.
They will find real companies underneath the noise.
29. What LPs Should Learn
LPs should also read the venture market carefully.
A record funding quarter does not automatically mean venture funds are healthy.
LPs should ask GPs:
How much of portfolio value depends on AI valuations?
How much DPI has been realized?
How many companies still carry 2021 valuations?
How many companies need follow-on support?
How exposed is the portfolio to weak liquidity?
How much reserve capital remains?
Are you overexposed to mega-rounds?
Are you missing application-layer or non-AI opportunities?
Are emerging managers being starved?
LPs should not mistake paper value for liquidity.
The venture ecosystem still needs exits.
30. What Corporates Should Learn
Corporate investors should see EY’s article as a strategic warning.
AI is changing venture markets.
But corporate capital should not chase AI blindly.
Corporates should ask:
Which AI applications matter to our business?
Which startups can improve our workflows?
Which companies can become suppliers, partners, or acquisition targets?
Which infrastructure matters strategically?
Which data assets can create advantage?
Can we become a customer?
Can we move faster than competitors?
CVC should not be a reaction to headlines.
It should be tied to business strategy.
A corporate that invests in AI without adoption plans is buying exposure, not advantage.
31. Founder Playbook for This Market
Founders should operate with precision.
1. Read the market beneath the headline
Total VC dollars are not enough.
2. Know your stage-specific bar
Seed, Series A, Series B, and growth all have different expectations.
3. Build toward follow-on financeability
The next round should shape today’s spending.
4. Show AI depth if you claim AI
Workflow, data, ROI, margin, and defensibility matter.
5. Use AI internally
Operate leaner and faster.
6. Build investor relationships early
Selective investors need time.
7. Prepare for slower liquidity
IPO and M&A windows may not save you quickly.
8. Watch valuation discipline
A high valuation that blocks the next round is dangerous.
9. Understand geography
Build where your category ecosystem is strongest.
10. Track fund health
Choose investors who can actually support you.
32. Investor Playbook for This Market
Investors should adjust their behavior too.
1. Separate AI leaders from AI tourists
Not every AI startup deserves premium pricing.
2. Watch deal volume
Capital totals are distorted.
3. Support strong portfolio companies honestly
Avoid indefinite bridge financing for weak companies.
4. Back application-layer AI carefully
Demand workflow ownership and customer ROI.
5. Do not abandon non-AI categories
Great companies still exist outside the dominant narrative.
6. Help founders prepare for follow-on rounds
Metrics, data rooms, and milestone planning matter.
7. Think about exits earlier
Liquidity is still the bottleneck.
8. Understand geography
Capital concentration creates both risk and opportunity.
9. Avoid valuation fantasy
Future exits must support today’s price.
10. Build trust with LPs
DPI matters more than paper headlines.
33. The Real Meaning of EY’s Q1 2025 Article
EY’s article was not only a quarterly update.
It was a lesson in how to read venture capital.
The market can be technically up and structurally uneven.
AI can lift the headline while deal count falls.
IT can dominate because one sector absorbs capital.
Dry powder can exist while fund formation weakens.
Mega-rounds can fall even when one giant deal creates a record quarter.
Investors can be active but still cautious.
Capital can be available but not for everyone.
That is the new venture market.
Founders who understand it will make better decisions.
Founders who do not will mistake someone else’s market for their own.
Conclusion: Venture Capital Is Not Back for Everyone. It Is Back for the Companies That Can Prove They Belong.
EY’s Q1 2025 venture capital trend analysis showed the contradiction at the heart of the modern startup market.
The headline looked strong.
US$80.1 billion raised.
Strongest quarter since Q1 2022.
Up 28% quarter over quarter.
But the details told a different story.
Without one US$40 billion AI transaction, the market would have been on pace to fall 36% from Q4 2024.
Deal volumes declined.
Fund formation hit the lowest level since Q3 2018.
Investors remained cautious about follow-on rounds.
Liquidity remained a concern.
Mega-round counts fell from the prior quarter.
IT dominated because AI dominated.
The Bay Area captured nearly 70% of all VC investment.
AI drove more than 70% of all VC activity.
That is not a normal recovery.
It is a concentrated market.
The 2026 data confirms the pattern at even larger scale. KPMG, PitchBook-NVCA, Carta, and Crunchbase all show that AI and mega-rounds can create record-looking totals while most founders still face a disciplined, selective, liquidity-constrained market.
The founder lesson is not pessimistic.
It is practical.
Capital still exists.
Great companies still get funded.
AI is creating enormous opportunity.
Health care, industrial tech, climate, fintech, SaaS, defense, logistics, and deeptech still matter.
But founders must stop reading total venture funding as a personal signal.
The real question is not:
Is venture capital back?
The real question is:
Is capital available for my company, at my stage, in my category, with my metrics, from investors who believe this business can reach the next milestone?
If yes, raise with confidence.
If no, build more proof.
The modern venture market rewards founders who can see through the headline.