# Venture Capital Has Never Been This Concentrated > Source: > Published: 2026-08-19 11:03:24+00:00 # Venture Capital Has Never Been This Concentrated ### 86% of funding this year has gone to AI companies. Plus: what do the most successful VCs have in common? 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[ ](https://dollarcommerce.substack.com/p/venture-capital-is-shrinking-heres)**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 ris** k 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.