'Disrupted or dead': AI is crushing a generation of startups built before ChatGPT
ChatGPT and AI advancements have disrupted pre-existing U.S. startups, leaving hundreds of once high-valued companies stranded without funding or profitability, according to PitchBook data. Over 220 billion-dollar unicorns have lost their status due to stagnant valuations and outdated technology, while AI-focused firms dominate venture capital investment.
The rise of AI, particularly ChatGPT, has reshaped the startup landscape in the U.S., leaving many pre-existing companies struggling to secure funding or justify their valuations. Five years ago, venture capitalists poured billions into startups across sectors like scheduling software and lingerie subscriptions, often awarding them billion-dollar valuations before profitability. However, the Federal Reserve’s interest rate hikes in 2022 and the arrival of AI tools like ChatGPT in late 2022 exposed vulnerabilities in these businesses, as AI reduced the need for labor-intensive development and shifted investor focus. PitchBook data shows there are 857 U.S. unicorn companies, but nearly half have not raised fresh funding in three years, with valuations plummeting—68% for those last funded in 2021 and 52% for those in 2022. Over 220 former unicorns have since fallen below the billion-dollar threshold due to stagnant growth and outdated AI integration. Mercury CEO Immad Akhund noted that non-AI startups now face an uphill battle to attract funding, requiring strong financial performance to compete with AI-first companies. Meanwhile, AI-focused firms like OpenAI and Anthropic have absorbed over $250 billion in venture capital ahead of planned IPOs, leaving pre-AI startups stranded between private and public markets. Samir Kaul of Khosla Ventures observed that AI tools have drastically reduced the cost of development, forcing investors to reassess valuations for traditional startups. Public software companies like Salesforce, ServiceNow, and Workday have also seen shares decline due to AI competition. The shift has created a stark divide: AI-driven startups thrive with massive funding, while legacy companies struggle to adapt or secure capital. Mercury, which raised $200 million last month, remains an exception, serving early-stage venture-backed firms with banking services. The broader trend underscores how AI has redefined startup viability, leaving many pre-existing businesses in a precarious position without clear paths to recovery.
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