2025 was the year of VC FOMO. A 'reckoning' might be coming in 2026. (www.businessinsider.com)

In 2025, the venture capital landscape experienced an unprecedented boom in seed funding for AI startups, with nearly 700 rounds exceeding $10 million, leading to record-high valuations. However, concerns are growing among investors about the sustainability of this frenzy, with some predicting a potential "bloodbath" in 2026 as many startups struggle to justify their inflated valuations amidst a challenging fundraising environment. Notably, VCs are facing the worst fundraising year since 2017, further complicating their ability to invest in emerging companies, many of which have little to no revenue. Despite these challenges, investors maintain a bullish outlook on AI, believing that despite current over-exuberance, there exists the potential for significant winners in the market. High-profile venture capitalists emphasize the pressing need for due diligence, as many new founders lack experience and are securing massive funding rounds based on hype rather than proven business models. This dichotomy illustrates the ongoing tension in the AI funding landscape—where the promise of transformative technology collides with the realities of market corrections, compelling investors to balance enthusiasm with caution as they navigate potential pitfalls in 2026.