Venture Capital Is Shrinking to Extremes, Leaving the Middle Behind
A handful of companies are dominating the venture capital market, while growth-stage startups struggle to survive.
As we move through 2025, the venture capital landscape appears to be improving. Funding levels are rising, artificial intelligence is booming, and some well-known companies have gone public. But beneath the surface, the story is very different. Rather than a full recovery, we’re seeing a major shift: capital is concentrating in a small group of large companies, leaving the rest of the venture market behind.
The Barbell Effect in Venture Capital
Today’s venture market shows a growing divide. On one end, early-stage founders are scraping together small checks from angels and microfunds. On the other, massive startups — so-called “ultra-unicorns” worth over $5 billion — are attracting huge investments at record speed.
In the first half of 2025, $70 billion flowed to just 11 companies. Two rounds — $40 billion for OpenAI and $14.3 billion for Scale AI — set all-time records for private venture funding. This extreme concentration of capital is not just unusual; it’s reshaping the entire venture ecosystem.
Large companies now raise more in a single round than many funds deploy over a decade. These outsized deals are pulling investor attention and money away from everything else. If you’re not already a top-tier name, it’s become increasingly difficult to raise follow-on funding.
Why Investors Are Playing It Safe
This shift in venture behavior isn’t hard to explain. Many limited partners remain cautious, and general partners are sticking to safer bets. AI, with its promise of scale and disruption, checks all the right boxes: big potential, large markets, and a sense of inevitability.
That creates a feedback loop. Companies with momentum attract more funding, which boosts their visibility and leads to even more investment. Meanwhile, solid, revenue-generating startups are overlooked — not because they lack merit, but because they lack hype.
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Growth-Stage Companies Are Being Squeezed
This is especially tough on growth-stage companies — those 6 to 10 years old, often profitable or close to it, and steadily building category leadership. These are real businesses with real customers, but they sit in a no-man’s-land: too mature for seed investors, not flashy enough for billion-dollar valuations.
In today’s venture environment, it often feels like you either go big fast or get left behind. The middle of the market, once a fertile ground for solid returns, is now struggling to stay afloat.
Concentrated Capital Creates Fragile Markets
There’s also risk in concentrating so much venture capital in so few hands. If any of these giant companies falter — or their valuations prove unrealistic — the ripple effects could hit the broader market hard.
We’ve seen this before. During the dot-com era, investors poured billions into fiber networks that took years to become useful. Something similar is happening now with AI infrastructure. The hope is that applications will catch up later — but it’s a gamble.
A Hidden Opportunity in Lean, Efficient Startups
There is, however, a silver lining. The overbuilding of AI infrastructure opens the door for smaller, capital-efficient startups to create real tools and services. These companies don’t need hundreds of millions to succeed. With clear strategies and lower funding needs, they can still deliver strong returns — and real impact.
The Second Half of 2025 Will Be Telling
As the year continues, the venture market will start to reveal which companies were built on substance and which were just stories. Startups that stay lean, focus on returns, and grow sustainably will be the ones that survive and thrive.
This isn’t the time for passive investing or trend-chasing. It’s a time for conviction and strategy. While the top of the venture market looks strong, the middle is starving — and that’s where the next generation of lasting businesses may quietly be growing.
We can cheer the companies valued at $10 billion, but smart investors would be wise to keep an eye on the overlooked startups — the ones building real value, out of the spotlight. Because in a few years, that’s where the biggest wins in venture will likely come from.