The top of AI is cracking | PitchBook News Summary

1. Key Themes

Theme: AI funding is cooling at the very top of the market

Frontier-lab mega-rounds are shrinking

The headline signal is that the largest checks in AI are getting harder to write, even as the broader category had a record year.

"It has been a record year for AI startup investment, but the cracks are already starting to show."
"OpenAI's raised just $11 billion of a $30 billion target in its latest round and accepted a lower valuation, The Wall Street Journal reported recently."
"Our analysts are bullish on a rebound, but OpenAI's shrinking round suggests the biggest checks are getting harder to write."

Deal value has fallen sharply, led by horizontal platforms

"Even before these developments, global AI VC deal value fell 43.4% from Q2 to $94.3 billion in Q3, according to PitchBook's Q3 2026 AI Report."
"Q3 marked a second quarterly decline from the $248 billion peak in Q1. Deal count also slid for the third consecutive quarter."
"The drop was sharpest at the top, where funding for horizontal platforms, including frontier model developers Anthropic and OpenAI, fell from $201.8 billion in Q1 to $27.6 billion in Q3."

Price competition and external headwinds are stacking up

"And as big tech players like Meta and Google compete on model pricing, pressure continues to mount on the other AI frontier labs."
"Voters passed a raft of ballot measures to restrict the data center buildout in the US midterm elections."
"An AI-driven selloff knocked the Nasdaq almost 7% off its October high."

Theme: Venture's recent outperformance is AI-driven and may be fragile

VC beat the S&P on a 1-year horizon, but history says that's the exception

"US VC's 1-year horizon IRR reached 22.8% in our latest data, surpassing the S&P 500 by a strong margin."
"That's really the only outperformance of the strategy in the past 20 years, however."
"Over the long term, there is a high correlation between public markets and venture returns. The past few years have been anything but correlated."

Markups without liquidity are the risk

"The recent surge in VC is driven by AI, which has created strong private portfolio markups, even as liquidity has been poor. Over 3- and 5-year horizons, the strength of mega caps has made the S&P the better bet."
"If the AI trade cracks, and the markups can't become realizations, the post-COVID vintages, which have posted strong pooled IRRs to this point, may not be able to keep the pace of VC's recent outperformance."
"Now, high rates put pressure on the economy, and the increased cost of capital pressures prices buyers are willing to pay."

Theme: Multistage consolidation is reshaping early-stage VC

Sequoia is restructuring around scale

"Sequoia Capital is reorganizing. The firm announced that it is shuttering its London office, dismantling its influential Scout program and its Arc accelerator, and combining its early-stage and growth teams. The firm also raised about $10 billion."
The newsletter frames this as part of a broader trend: "Dig into how multistage funds like Sequoia are reshaping early-stage VC in our analyst note."

Theme: Capital keeps flowing to AI infrastructure and agent plays, even as the top softens

Large rounds persist below the frontier-lab tier

"San Francisco-based Fal, which hosts and runs generative AI models for video, images and audio, raised $1.65 billion, which included a $1.3 billion Series F led by Bessemer Venture Partners and a $350 million Series E led by Sequoia, at a $16 billion valuation."
"Nooks, a San Francisco-based developer of AI agents for sales teams, secured a $500 million growth capital commitment from General Catalyst's Customer Value Fund."
"Sentra, a provider of data security software for enterprises deploying AI agents, raised a $150 million Series C led by Capital One Ventures."
"Berlin-based Pliant, which provides B2B payment infrastructure for businesses and AI agents, raised an $80 million Series C."

2. Contrarian Perspectives

Even a record AI year may be masking a peak

Consensus treats 2026 as an unalloyed AI boom year. The newsletter argues the data already shows a roll-over: "Q3 marked a second quarterly decline from the $248 billion peak in Q1. Deal count also slid for the third consecutive quarter." The evidence is concentrated at the top: "funding for horizontal platforms... fell from $201.8 billion in Q1 to $27.6 billion in Q3." The analysts remain bullish on a rebound, but the OpenAI round (just $11 billion of a $30 billion target, at a lower valuation) suggests demand for the largest checks is not unlimited.

VC's headline outperformance is an anomaly, not a new regime

Strong 1-year IRRs invite the conclusion that venture has re-established itself as the superior asset class. The newsletter pushes back: "That's really the only outperformance of the strategy in the past 20 years, however." It also notes that "Over 3- and 5-year horizons, the strength of mega caps has made the S&P the better bet." The returns rest on unrealized markups ("strong private portfolio markups, even as liquidity has been poor"), which are only as good as the exit environment.

Private equity's long-run record still dwarfs newer strategies

The chart of the day offers a quiet counterpoint to the VC/AI narrative: "PE strategies are the longstanding leader in private capital. If you had deployed $100 into middle-market buyout in 2007, it would be worth $1,127 today. The same amount invested in PE growth would swell to $956, and a buyout megafunds investment to $842."

3. Companies Identified

Sequoia Capital

Description: Prominent venture capital firm.
Why mentioned: Announced a major reorganization and is a lead investor in Fal.
Quotes: "Sequoia Capital is reorganizing. The firm announced that it is shuttering its London office, dismantling its influential Scout program and its Arc accelerator, and combining its early-stage and growth teams. The firm also raised about $10 billion."

OpenAI

Description: Frontier AI model developer.
Why mentioned: Case study in the cooling of mega-rounds.
Quotes: "OpenAI's raised just $11 billion of a $30 billion target in its latest round and accepted a lower valuation, The Wall Street Journal reported recently."

Anthropic

Description: Frontier AI model developer.
Why mentioned: Cited among horizontal platforms whose funding fell sharply.
Quotes: "funding for horizontal platforms, including frontier model developers Anthropic and OpenAI, fell from $201.8 billion in Q1 to $27.6 billion in Q3."

Meta and Google

Description: Big tech competitors in AI models.
Why mentioned: Competing on model pricing, pressuring other frontier labs.
Quotes: "as big tech players like Meta and Google compete on model pricing, pressure continues to mount on the other AI frontier labs."

Fal

Description: San Francisco-based host and runner of generative AI models for video, images and audio.
Why mentioned: Largest round in the deals section.
Quotes: "raised $1.65 billion, which included a $1.3 billion Series F led by Bessemer Venture Partners and a $350 million Series E led by Sequoia, at a $16 billion valuation."

Nooks

Description: San Francisco-based developer of AI agents for sales teams.
Why mentioned: Secured a large growth capital commitment.
Quotes: "secured a $500 million growth capital commitment from General Catalyst's Customer Value Fund."

Sentra

Description: Data security software provider for enterprises deploying AI agents.
Why mentioned: Raised a Series C in the AI-agent security niche.
Quotes: "raised a $150 million Series C led by Capital One Ventures."

EloElo

Description: Bengaluru-based operator of the microdrama streaming app Story TV.
Why mentioned: $80M Series C with strategic media backing.
Quotes: "raised an $80 million Series C led by Hornbill Capital and NBCUniversal. The deal values the company at $500 million, TechCrunch reported."

Pliant

Description: Berlin-based B2B payment infrastructure provider for businesses and AI agents.
Why mentioned: Series C in agentic payments.
Quotes: "raised an $80 million Series C led by Seaya Nova and Speedinvest."

Titan OS

Description: Barcelona-based smart TV operating system maker.
Why mentioned: Mixed equity and debt raise.
Quotes: "raised $46 million in equity and debt, with debt facilities from BlackRock and equity from Highland Europe and Mangrove Capital Partners."

Revolut

Description: London-based neobank.
Why mentioned: Secondary sale at Europe's highest startup valuation.
Quotes: "completed a secondary share sale, led by Glade Brook Capital Partners, Coatue, Durable Capital Partners, T. Rowe Price and Baillie Gifford, which values Europe's most valuable startup at $115 billion."

Bit.bio

Description: UK-based human cell programming startup.
Why mentioned: Biotech Series D.
Quotes: "raised a $25 million Series D from investors including M&G Investments and Jonathan Milner."

Supa

Description: London-based property management specialist.
Why mentioned: Seed round combining equity and debt.
Quotes: "secured a £21 million seed investment comprising equity, led by 2150 and OpenOcean, and debt from a UK lender."

Biograil

Description: Copenhagen-based biotech company.
Why mentioned: European biotech raise.
Quotes: "raised €20 million from investors including Verve Ventures, Megatrend Invest and HTGF."

Enduring Resources IV (EnCap Investments)

Description: Denver-based San Juan oil and gas producer.
Why mentioned: Potential large energy exit.
Quotes: "EnCap Investments is exploring a sale of Enduring Resources IV... in a deal that could value the company at more than $4 billion, Reuters reported."

Mapletree

Description: Temasek-owned Singapore real estate investment and fund management group.
Why mentioned: Planning a Singapore IPO of select assets.
Quotes: "is picking banks for an IPO in Singapore of some of its assets that could raise at least $1 billion Singapore dollars ($780 million), Bloomberg reported."

Moeve

Description: Mubadala-owned Spanish energy group.
Why mentioned: Exiting oil and gas exploration and production.
Quotes: "agreed to sell its Algerian upstream oil and gas assets, stakes in three Berkine Basin fields, to units of Indonesia's state energy firm Pertamina, completing the Spanish group's full exit from oil and gas exploration and production."

Blackstone

Description: Alternative asset manager.
Why mentioned: Large European credit fundraise.
Quotes: "raised approximately €13 billion for its fourth European direct lending fund."

Mill Reef Capital

Description: Zurich-based investment firm.
Why mentioned: Closed at hard cap.
Quotes: "closed Fund III on its €550 million hard cap."

Intera Partners

Description: Private equity firm.
Why mentioned: Closed its fifth fund.
Quotes: "closed its fifth fund on €450 million."

MB Funds

Description: Fund manager.
Why mentioned: Closed an equity fund.
Quotes: "closed MB Equity Fund VII on €222 million."

Ballistic Ventures

Description: Cybersecurity-focused venture firm.
Why mentioned: Filed for new funds.
Quotes: "filed to raise $360 million for its third flagship fund and $130 million for a separate vehicle, TechCrunch reported."

Yosemite

Description: Cancer-focused VC firm founded by Reed Jobs.
Why mentioned: Closed its second fund.
Quotes: "closed its second fund on $350 million, Fortune reported."

Motilal Oswal Financial Services

Description: Indian financial services firm with an alternative-investment business.
Why mentioned: Hired a new head for the alternatives unit.
Quotes: "Padmanabh Sinha... will lead Motilal Oswal Financial Services' alternative-investment business."

4. People Identified

Padmanabh Sinha

Description: Former executive director and CIO at India's National Investment and Infrastructure Fund; now leading Motilal Oswal's alternatives business.
Why mentioned: Notable senior hire in Indian alternatives.
Quotes: "Sinha previously co-led Temasek Holdings' India operations."

Reed Jobs

Description: Founder of the cancer-focused VC firm Yosemite.
Why mentioned: Yosemite closed its second fund.
Quotes: "Yosemite, the cancer-focused VC firm founded by Reed Jobs, closed its second fund on $350 million, Fortune reported."

Jonathan Milner

Description: Investor in Bit.bio's Series D.
Why mentioned: Named as a participant in the round.
Quotes: "raised a $25 million Series D from investors including M&G Investments and Jonathan Milner."

5. Operating Insights

Plan for a tighter capital environment at the top and a flight to quality

Frontier-lab fundraising shows that even category leaders face smaller rounds and lower valuations. Operators raising large rounds should model scenarios where targets are only partially met. "OpenAI's raised just $11 billion of a $30 billion target in its latest round and accepted a lower valuation."

Layer in alternative capital structures

Several raises combined equity with debt or structured commitments: "Titan OS... raised $46 million in equity and debt, with debt facilities from BlackRock"; Supa's seed included "debt from a UK lender"; and Nooks took "a $500 million growth capital commitment from General Catalyst's Customer Value Fund." Non-dilutive and customer-value-linked capital can supplement priced equity rounds.

Anticipate regulatory and political risk in infrastructure-heavy businesses

Data center buildout now carries local political risk: "Voters passed a raft of ballot measures to restrict the data center buildout in the US midterm elections." Companies dependent on compute should track state- and county-level sentiment, as the linked coverage notes where "incoming leaders stand on data center issues and how local communities voted on ballot measures."

6. Overlooked Insights

Private equity may face Capitol Hill scrutiny

A short side item flags a regulatory shift: "With Democrats in power, private equity is likely to face investigations on Capitol Hill. Lobbyists and policy analysts say firms should be prepared as concerns mount over their roles in healthcare and housing, among other industries."

Strategic media money is backing microdrama streaming

EloElo's round (led by Hornbill Capital and NBCUniversal at a $500 million valuation) hints that a legacy media company sees value in short-form serialized mobile content in India, an emerging format worth tracking.