Greetings,

The gold rush for AI startups is back with a vengeance. Last year, as money poured into the sector, there was a healthy dose of skepticism about the high costs and unproven demand. But now, as Natasha Mascarenhas reports, that skepticism is on its last legs. The explosive revenue growth at companies like OpenAI and Anthropic is showing that businesses and consumers are consistently paying for AI apps, and this is sending dealmaking into overdrive.

Why it caught my eye:

• VCs are acting on FOMO. In a clear sign of heightened excitement, venture capitalists are increasingly offering to invest in startups well before they formally begin fundraising. This has led to some founders asking investors to stop sending term sheets because the distraction is a drain on resources.
• The dry powder is shrinking fast. The sheer pace and size of these AI deals are rapidly depleting venture firms' capital. According to Jon Sakoda of Decibel Partners, dry powder could sink to its lowest level since 2019 by the end of the year.
• Founders are in the driver's seat. The investment frenzy has given savvy founders the power to set their own terms on valuations and governance, even deciding on aspects like voting rights and board control. This is a significant shift from the typical fundraising process where a lead investor usually sets the terms.

This dynamic is not without its risks, and it's a crucial read for anyone trying to understand the new reality of startup fundraising in the age of AI.

Best,

Jessica Lessin
Founder & Editor-in-Chief

Unsolicited Term Sheets, Declining Dry Powder: Inside the AI Deal Rush

Last year, when money was surging into artificial intelligence startups, even some venture capitalists involved in those deals worried that the high costs of AI and unreliable demand from businesses were setting up many startups for disappointment.

Such skepticism, if not dead, is on its last legs. Monthly revenue that is doubling or quadrupling this year at startups such as OpenAI, Anthropic and Cursor-maker Anysphere have shown that businesses and consumers are consistently paying for AI apps, not just dabbling. That's sent dealmaking, including into companies that are less proven, into overdrive.