The venture capital landscape has hardened into a binary choice: embrace AI or face a steep funding uphill climb. PitchBook’s director of research, Kyle Sanford, told Bloomberg this week that the market is becoming “bifurcated,” where “you’re in AI, or you’re not” and “you’re a big firm, or you’re not,” a blunt assessment that investors and founders say matches what they are seeing at the term sheet negotiation table.

Over the last 18 months, capital has flowed disproportionately into companies positioning themselves as AI-first, from startups building foundational models to niche firms applying machine learning to vertical problems. The influx has lifted valuations and enabled hefty follow-on rounds for winners, while companies without an AI narrative report stalled fundraises, down rounds or shrinking investor interest.

“The bar for what counts as investable has shifted,” said an early-stage investor who requested anonymity to speak candidly about fundraising conversations. “LPs want exposure to AI growth, and that’s reshaping partner memos. If you aren’t solving something with ML or generative systems, you need a very clear path to revenue to compete.”

The consequences ripple beyond balance sheets. Founders in healthcare, climate tech and other sectors say they are being pressured to rebrand or add token AI features to remain attractive, a tactic that investors caution may foster technical debt and distract from validated product-market fit. At the same time, employees and engineers are migrating toward AI teams that promise higher pay and richer equity outcomes, intensifying hiring challenges for smaller, non-AI ventures.

Investors framed the trend as both opportunity and risk. Concentrating capital in AI could accelerate breakthroughs and commercialization, but it also concentrates portfolio risk and narrows the range of problems receiving private capital. Some limited partners and allocators have urged caution, citing the historical tendency for enthusiasm around a single technology to overheat valuations and underdeliver in execution.

Large firms are also benefiting from the bifurcation. Established companies with scale, distribution and existing revenue are capturing investor favor because their balance sheets make them safer vehicles for AI investment, particularly in a time of macroeconomic uncertainty. That dynamic favors later-stage rounds and makes it harder for small teams without traction to secure large checks.

Industry events this fall are already reflecting those priorities. A major San Francisco conference set for Oct. 27–29, 2025 is marketing itself to founders and investors as a place to meet “startups that align with your investment goals” and “see the future of tech before everyone else.” Organizers are offering registration discounts of up to $444 and group rates, underscoring how conferences have become critical venues for bridging founders to AI-focused capital.

For startups outside the AI spotlight, experts advise clarifying unit economics, pursuing non-dilutive funding and cultivating investors aligned with long-term sector bets. The new bifurcated reality means founders must make a strategic choice: pivot toward AI adoption where it makes sense, or double down on demonstrable traction that can withstand the narrower attention of today’s venture market.