AI is crushing startup valuations for pre-ChatGPT firms

The venture capital landscape has undergone a significant transformation in recent years, driven by advancements in generative AI technology. Five years ago, startups were riding high on inflated valuations, fueled by easy access to funding and increased demand. However, the arrival of ChatGPT, an AI-powered app, marked a turning point in the industry.

Investors, like Samir Kaul from Khosla Ventures, recognized the potential of AI-native startups and the efficiency they brought to the table. This shift in focus towards AI-native companies led to a quiet but significant reckoning in the private markets. Companies that were built before the AI boom found themselves stranded, struggling to attract funding due to their outdated technology and inflated valuations.

According to PitchBook data, there are over 850 U.S. startups valued at $1 billion or more, but nearly half of them had not raised fresh funding in the last three years by the end of 2025. This lack of funding has led to a decline in valuations for many companies, with some falling unicorns experiencing significant drops in value.

The list of fallen unicorns includes well-known brands such as Glossier, The Farmer’s Dog, Rothy’s, Brooklinen, and Savage X Fenty. These companies, along with others in the direct-to-consumer space, were built on the assumption of continued growth and low interest rates. However, the rise of generative AI has disrupted these assumptions, making it challenging for many older startups to justify their valuations.

Enterprise software companies, like scheduling startup Calendly, have been hit particularly hard by the AI revolution. The SaaS model, which relies on embedding software into employee workflows, is facing significant challenges from autonomous agents. Companies built before the AI era are struggling to adapt to the new technological landscape, leading to a decline in valuations and funding opportunities.

Investors and founders believe that many fallen unicorns will likely face acquisition at a fraction of their previous valuations as their growth prospects diminish. The reset in startup valuations has led to a compression in valuations, with companies being worth significantly less than they were during the peak of the venture boom.

Overall, the impact of generative AI on the startup ecosystem is just beginning to be felt. Companies will need to adapt to AI-native technologies and outcome-based pricing models to survive in this new landscape. The dominance of AI-powered companies like OpenAI, Anthropic, and Google is reshaping the industry, challenging traditional business models and assumptions.