U.S. startup valuations reset as AI boom strands older unicorns

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US startup valuations reset

Highlights

More than 220 former $1 billion U.S. startups are now 'fallen unicorns', with 2021 and 2022 vintage firms facing 68% and 52% average valuation drops, respectively.
Over $250 billion in capital has flowed to OpenAI and Anthropic, shifting venture priorities away from older startups, especially those with higher cost structures.
Software-as-a-service leads the fallen unicorn list with 75 companies, as generative AI compresses valuations and investor focus moves to AI-first business models.

PitchBook data highlights valuation pressure

As reported by PitchBook data provided exclusively to CNBC, more than 220 companies that once achieved valuations of at least $1 billion are now classified as fallen unicorns. The private markets firm says startups that last raised in 2021 are worth 68% less on average, while those that last raised in 2022 have seen valuations decline 52%.

PitchBook says nearly half of the 857 U.S. startups still carrying unicorn status have not raised fresh capital in the past three years. Its estimates are based on factors including headcount growth and comparisons with public companies, pointing to a broad repricing across venture-backed businesses formed before ChatGPT’s arrival in 2022.

The list includes consumer and technology names such as Glossier, Savage X Fenty, AG1, The Farmer’s Dog, Betterment and SeatGeek. Many of these businesses expanded during the low-rate venture boom, when investors backed aggressive growth and expected companies to justify lofty valuations over time.

AI investment reshapes venture funding priorities

The shift accelerates as more than $250 billion flows into OpenAI and Anthropic, drawing capital and attention away from older startups with higher cost structures and products built for a pre-AI market. Samir Kaul, a partner at Khosla Ventures, says generative AI is forcing investors to rethink how companies are valued because far smaller teams can now build products that once required much larger engineering staffs.

That pressure is especially visible in software. PitchBook’s list includes 75 software-as-a-service companies, double the number of fintech firms, making SaaS the largest category among fallen unicorns as generative AI challenges core assumptions behind the sector’s earlier premium valuations.

Mercury CEO Immad Akhund says companies that are not AI-first are in a difficult position because investor attention is concentrated on artificial intelligence. For many older startups, the result is a tougher funding market in which they need much stronger financial performance to raise money, while investors increasingly ask whether OpenAI, Anthropic or Google can replicate their products.

In our earlier article on the AI-led rally in U.S. equities, we noted that the S&P 500’s advance was increasingly concentrated in a narrow group of AI-linked leaders, a setup that some strategists compared to late-stage dotcom-era market conditions. We also highlighted how semiconductors and other AI-adjacent names powered gains while market breadth weakened, prompting calls for a more defensive positioning as participation across the index thinned.

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