Hitting it big betting on startups in the AI era will be a lot harder, but Silicon Valley might not feel the worst of it (www.businessinsider.com)

The landscape for investing in AI startups is becoming increasingly challenging, as highlighted by the recent experiences of Menlo Ventures with Anthropic, a company that skyrocketed from a $4.1 billion valuation in 2023 to $1.2 trillion in secondary markets. Despite this impressive return, such success stories are rare, and venture capital firms are finding it necessary to adapt their investment strategies. Matt Murphy of Menlo Ventures noted that initial skepticism surrounded their decision to invest, underscoring the uncertainty that still exists in the emerging AI sector. As artificial intelligence lowers barriers to entry for new startups, the surge in competition may complicate the investment landscape even further. With a wave of new founders entering the market, often motivated by fear of missing out (FOMO), the influx of cash from affluent investors is raising valuations across the board. Although venture capitalists are accustomed to making bets on high-risk ventures, the looming possibility of underperformance in public markets could leave average investors at a disadvantage, highlighting the stark divide between early-stage investments and public market realities.