Venture capital markets have entered a sharp phase of concentration, with investors increasingly directing funds to artificial-intelligence businesses and large, well-capitalized firms, industry researchers and market participants say. “The market is becoming bifurcated,” PitchBook’s director of research Kyle Sanford told Bloomberg, adding the blunt formulation that “you’re in AI, or you’re not” and “you’re a big firm, or you’re not.”

The consequence is a reallocation of risk and capital. Investors, under pressure from limited partners to produce outsized returns after a bruising market reset, are favoring a small slice of companies that show credible pathways to scale via foundational models, compute-enabled moats, or clear enterprise adoption. That has translated into fewer rounds for non-AI startups and a rising share of deal value concentrated in later-stage, high-dollar financings for AI-focused ventures and established market leaders.

Founders across software, healthcare, climate tech and other sectors describe a tougher road to get meetings and term sheets. “We suddenly compete against companies whose ‘AI’ label seems to be a checkbox,” said one founder of a mid-stage climate startup, speaking on condition of anonymity. “VCs have tightened the funnel. If you’re not solving a problem with machine learning at the center, you’re not getting the same attention.” Several investors confirmed to this reporter that pitches are increasingly evaluated first on whether they leverage AI as a core driver of differentiation.

The market shift has macro and policy implications. Concentration increases systemic risk in private markets, raising the odds that failures or funding pullbacks at a handful of large players could ripple quickly. It also amplifies regional disparities: tech hubs that host deep AI talent and access to hyperscale compute are better positioned to capture follow-on investment and talent flows, leaving smaller ecosystems at a disadvantage.

Policymakers are starting to take note. Economists and industry lobbyists say there are a limited set of levers to preserve a diversified innovation pipeline: targeted R&D grants, expanded research tax credits that favor early-stage experimentation, and regional development funds to keep non-AI clusters viable. Without interventions, the “winner-take-most” dynamics of platform-driven AI could narrow the range of ideas that receive capital.

For investors, the calculus is tactical as well as strategic. Some are doubling down on AI-focused funds, buying into the network effects of model scale and data. Others are experimenting with hybrid approaches — pairing modest capital with customer introductions or corporate partnerships to keep niche technologies alive while de-risking commercialization.

The shift will be a focal point at industry gatherings this fall. TechCrunch’s San Francisco event, scheduled for Oct. 27-29, 2025, positions itself as a place “where founders, investors and visionaries see the future of tech,” underscoring how conferences have become critical for matchmaking in a tougher market. Registration details advertise savings “up to $444 (or 30% on groups).”

For founders, the practical choices are narrowing: convincingly incorporate AI where it genuinely adds value, seek strategic partnerships with larger firms, or pursue alternative financing routes such as revenue-based financing, corporate venture arms, or government programs. The longer-term consequence, for the economy and investors alike, will be whether this bifurcation accelerates meaningful innovation or simply channels capital toward a smaller set of scalable bets.