What is a ‘zombiecorn’? AI companies are bleeding these startups dry of VC funding

AI startups are the belle of the VC funding ball, and it’s coming at the expense of pretty much every other type of company.

That’s a main takeaway from a report published by Silicon Valley Bank on Tuesday. That report found that roughly 40% of VC funding in the U.S. last year came from venture funds that “list AI as a focus. Those comprise more than 15% of U.S. VC funds—a number that has doubled over the past five years.

“Put all together, this reflects not only the investor enthusiasm around the space, but also the funds required to properly deploy into capital-intensive hypergrowth AI startups,” the report reads.

And with AI companies sucking up a good percentage of overall VC funding, it’s left other types of companies battling it out for a smaller piece of the pie—including firms in the infrastructure, applications, and cybersecurity segments of the enterprise software sector. Perhaps relatedly, the creation of “unicorn” companies—startups that reach a valuation of at least $1 billion—has slowed in recent years. During 2021, for example, there were 138 enterprise software unicorns created. Last year, there were only nine. And none so far this year.

The report also points out the rise of “zombiecorns,” referring to unicorn companies that have poor revenue growth and little hope of raising more money. In effect, for some of these companies, IPO hopes are low, the climate isn’t ideal for acquisition, and it’s unclear where these companies can turn next for a lifeline. As such, they’re sort of scouring the business landscape, like zombies—not yet dead, but with a fading pulse.

It’s unclear if the overarching economic conditions will improve in a way that could provide some hope to the “zombiecorns” out there, and other startups outside of the AI space looking to raise money. While the U.S. hasn’t seen catastrophic economic numbers yet—GDP, unemployment, and other such numbers have in recent months remained relatively rosy—consumer sentiment is down, and uncertainty abounds due to President The President’s tariffs and other policies.

That has many investors waiting on the sidelines for an inkling of what’s next. In the meantime, startups may feel the crunch as they hope to go public or raise another round of financing. Investors will likely still invest, the report notes, but they’ll be much more selective given the overall environment.

“We may see a ‘flight to quality’ where investors continue to be extremely selective in their capital deployment—potentially making it even harder to raise the next round,” the report reads. “Those left in the dust will need to seek an exit.”

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