At first glance, the venture capital market looks healthier than ever. U.S. companies raised more in the first half of 2026 than in any full year.

But the industry has never been so dependent on one bet: AI. During the first half of 2026, 86% of U.S. venture capital spending went to AI companies, up from 65% last year. That kind of concentration hasn’t happened before.

Meanwhile, funding for non-AI companies has been cut in half since 2021. This unprecedented concentration makes the already volatile venture capital industry even riskier, and threatens the breadth of the American innovation ecosystem.

All Roads Lead to AI

The venture capital industry isn’t just concentrated in AI; it’s concentrated in a few AI companies. Just two firms, OpenAI and Anthropic, captured 53% of all the venture dollars raised in the first half of 2026. As far back as 2000, venture capital has never been so concentrated in one sector. Even in 2001, only 38% of North American venture capital was allocated to B2B software.

J.P. Morgan’s head of market insights, Ginger Chambless, described the concentration as “without precedent in modern venture history.”

Mega deals (defined as funding rounds over $100 million) have accounted for nearly 88% of capital deployed in the first half of 2026, and most are being raised by AI companies. At the same time, deals under $100 million drew just 12.5%, down from 44% two years ago.

AI companies are valued at a premium and are more likely to raise a second round. In 2025, 12.1% of AI companies that raised a first round went on to raise a second. For other types of companies, it was 6.9%. As of the first half of 2026, AI companies are twice as likely to raise again as non-AI companies.

The cost of this increasing concentration is that ideas in sectors outside of AI aren’t getting funded. Biotech, fintech, healthtech, and cybersecurity companies in North America received roughly half as much capital last year as they did in 2021.

Money Begets Money

Venture capital is concentrating at the fund level, too. The 10 largest venture funds captured 43% of all capital committed in 2025, up from 13% in 2021. It continues to get worse: The three biggest brand-name firms, Andreessen Horowitz, Founders Fund, and Thrive Capital, captured 48% of the capital committed in the first half of this year.

There isn’t an unlimited supply of investable capital, so when most of it goes to the same group of Stanford grads, there’s less for newer funds to fight over. Unsurprisingly, first-time venture fund formation is on pace for its lowest year since 2016.

The concentration of capital in the biggest, most well-known funds is partly a function of market dynamics. Fewer IPOs and less M&A activity between 2022 and 2024 meant that returns from venture capital funds were dismal. In fact, this period was the worst stretch for venture liquidity since the 2008 financial crisis.

The IPO market recovered slightly last year, but the backlog of companies waiting for exits is still huge: More than 800 unicorns are stuck in the IPO backlog. At the current exit pace, clearing it would take about 30 years.

Public pension funds and university endowments are the biggest investors in venture capital, and the decision-makers at those institutions are on the hook to generate returns. When the whole category isn’t doing well, it’s safer to allocate money to large, brand-name VCs. Funds that have more capital are less at risk of going out of business if they have to wait years for their portfolio companies to exit.

Smaller VC firms look comparatively vulnerable and, as a result, are attracting less capital — and even closing outright. The number of VC firms in the United States fell to 2,984 in 2025 from 3,054 the year before — the first decline ever recorded.

What Gets Left Behind

Will historic concentration in the VC sector narrow the scope of potential public market winners down the road?

For example, if investment in biotech and health companies gets cut in half, doesn’t that decrease the odds that the next Moderna founder gets funded?

Some might argue that the increasingly lopsided funding ecosystem is an unavoidable result of the power law of venture capital, which describes how just a few winners are responsible for most of a fund’s profits. To be specific, roughly 6% of deals drive about 60% of returns. The nature of this industry rewards capital allocators who bet big on what they think is the next SpaceX, not those who bet safely or allocate money evenly.

But the power law characterizes outcomes. Achieving success in venture capital means making high-risk, high-reward bets, but it also means making a lot of those bets across a variety of different companies. If everyone thinks the next SpaceX is OpenAI, what happens if it’s not? What if AI hype is obscuring what could be the next big thing? The unprecedented concentration of venture capital in just one industry and in just a few companies increases the risk of those bets not working out — and as VCs themselves know, most of them don’t.

But there’s an even more existential threat.

Venture capital dollars shape American innovation and seed the U.S. public markets. Seven of the 10 biggest American public companies by market capitalization were venture-backed, as were half of all public companies founded in the U.S. in the past 50 years. Research suggests the VC industry in America is causally responsible for one-fifth of the largest 300 U.S. public companies, and that three-quarters of the largest VC-backed companies wouldn’t exist in their current state without it.

Venture capital is a business, and general partners are obligated to make decisions that generate returns for their investors. Funding entrepreneurs whose products improve the lives of Americans and U.S. public markets is not one of their obligations.

Funding products that improve the lives of Americans is one of the obligations of the American government. The founders wrote in the Constitution that Congress is empowered “to promote the Progress of Science and useful Arts.”

Yet, at the same time that funding in the private markets is narrowing, public R&D funding is declining and narrowing, too. The federal government’s share of the country’s R&D funding has fallen to 18% in 2022 from 67% in 1964, and funding as a share of GDP has dropped to 0.63% today from close to 2% in the 1960s.

President Trump is only accelerating the decline of diverse, federally fueled innovation. Last year, 5,844 National Institutes of Health grants and 1,996 National Science Foundation grants were suspended or terminated, and his administration has reallocated the remaining federal science budget toward AI, quantum, and nuclear. Research in less hyped fields will go unfunded.

Investing in unsexy research and boring companies has created enormous value for American investors and consumers. Could Warby Parker, JetBlue, Whole Foods, and FedEx have become what they are without venture funding? Similarly, would we have GLP-1s, vaccines, or microwaves had the government decided to fund only one kind of innovation?

The fact that both venture capitalists and the U.S. government are doubling down on the same top-heavy industry means that America’s future as a financial and technical leader has never depended on fewer people and companies.

With capital and opportunity this concentrated, it’s worth knowing exactly who the decision-makers are. A new study breaks down what separates the venture capitalists who succeed from the ones who don’t. Read on for the data, and a few actionable takeaways, available exclusively to Prof G+ subscribers.

Venture Capital Has Never Been This…

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