'Disrupted or dead': AI is crushing a generation of startups built before ChatGPT
Five years ago, venture capitalists were pouring money into American startups selling everything from lingerie subscriptions to scheduling software, anointing them with billion-dollar valuations before most even turned a profit. It was a frothy era for startups, fueled by a comb
Five years ago, venture capitalists were pouring money into American startups selling everything from lingerie subscriptions to scheduling software, anointing them with billion-dollar valuations before most even turned a profit.
It was a frothy era for startups, fueled by a combination of cheap money and pandemic-boosted demand. But even after the Federal Reserve took some froth off by starting to raise interest rates in 2022, many founders believed that they could grow into their inflated valuations, investors told CNBC.
"The ChatGPT moment was when people said, 'Holy smokes, the next generation of entrepreneurs, their coding language is spoken English,'" said Samir Kaul, a partner at the venture firm 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," Kaul said. "We had to completely reshuffle how we valued these companies."
While the shares of public software companies like Salesforce , ServiceNow and Workday got hammered this year because of the threat from artificial intelligence, a quieter reckoning has been unfolding in the private markets.
The AI boom that funneled more than $250 billion into OpenAI and Anthropic ahead of their expected mega-IPOs this year has left hundreds of startups built before ChatGPT's arrival in 2022 stranded — effectively cut off from venture funding because of their inflated valuations and outdated technology, yet not profitable enough for the public markets.
There are 857 U.S. startups valued at $1 billion or more, the threshold for being deemed a "unicorn" company, according to PitchBook data. But nearly half of that group hasn't raised fresh funding in the last three years, making those valuations stale, according to the private markets data firm.
Startups that last raised in 2021 are now worth 68% less on average, while those that last raised in 2022 saw a 52% decline, according to Pitchbook's own valuation estimates.
