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5 years in the past, enterprise capitalists have been pouring cash into American startups promoting every part from lingerie subscriptions to scheduling software program, anointing them with billion-dollar valuations earlier than most even turned a revenue.
It was a frothy period for startups, fueled by a mix of low-cost cash and pandemic-boosted demand. However even after the Federal Reserve took some froth off by beginning to lift rates of interest in 2022, many founders believed that they may develop into their inflated valuations, traders advised CNBC.
Then, an app known as ChatGPT arrived.
“The ChatGPT second was when folks stated, ‘Holy smokes, the following era of entrepreneurs, their coding language is spoken English,'” stated Samir Kaul, a associate on the enterprise agency Khosla Ventures, an early backer of OpenAI.
“Now you are seeing 50 engineers do what it could’ve taken 500 engineers to do 5 years in the past,” Kaul stated. “We needed to utterly reshuffle how we valued these corporations.”
Whereas the shares of public software program corporations like Salesforce, ServiceNow and Workday received hammered this 12 months due to the menace from synthetic intelligence, a quieter reckoning has been unfolding within the non-public markets.
The AI growth that funneled greater than $250 billion into OpenAI and Anthropic forward of their anticipated mega-IPOs this 12 months has left lots of of startups constructed earlier than ChatGPT’s arrival in 2022 stranded — successfully lower off from enterprise funding due to their inflated valuations and outdated expertise, but not worthwhile sufficient for the general public markets.
There are 857 U.S. startups valued at $1 billion or extra, the brink for being deemed a “unicorn” firm, based on PitchBook information. However almost half of that group hadn’t raised recent funding within the final three years as of the top 2025, making lots of these valuations stale, based on the non-public markets information agency.
Startups that final raised in 2021 have been price 68% much less on common on the finish of final 12 months, whereas people who final raised in 2022 noticed a 52% decline, based on Pitchbook’s personal valuation estimates.
Because of this, greater than 220 corporations that had reached billion-dollar valuations within the enterprise growth have been deemed fallen unicorns, based on PitchBook, which supplied a listing of the businesses completely to CNBC. The estimates are based mostly on elements together with head depend progress and comparisons with public corporations.
“Quite a lot of these corporations are pre-AI, not simply of their value construction, but additionally of their merchandise,” Mercury CEO Immad Akhund advised CNBC. His firm, which raised $200 million in funding final month, supplies banking companies to a 3rd of early-stage U.S. venture-backed corporations.
“They’re undoubtedly in a tough spot,” he stated. “All the eye’s on AI, so for those who’re not an AI-first firm, you want actually sturdy numbers to lift.”
Glossier, Brooklinen, AG1
The record of fallen unicorns contains well-known manufacturers like Glossier, The Farmer’s Canine, Rothy’s, Brooklinen and Savage X Fenty, the lingerie firm based by musician Rihanna. The businesses have been a part of a wave of direct-to-consumer corporations constructed on the hope that digital retailers may earn software-like margins.
Additionally included are mainstays of podcast commercials together with the powder complement maker AG1 and the robo-advisor pioneer Betterment in addition to the net ticket market SeatGeek.
These corporations got here of age in an surroundings that rewarded progress at nose-bleed valuations based mostly on two broad assumptions: rates of interest would stay low and a startup may at all times be acquired for its engineering expertise.
However the arrival of generative AI has redrawn the enterprise panorama, redirecting capital towards AI-native corporations whereas making it inconceivable for a lot of older startups to justify their earlier valuations.
Hit hardest are enterprise software program corporations like scheduling startup Calendly, which symbolize the only largest class among the many fallen unicorns. There are 75 software-as-a-service, or SaaS, corporations showing on PitchBook’s record, which is double the variety of fintech corporations, the next-biggest group.
That displays each the big valuations that software program startups commanded throughout the 2021 enterprise growth and the diploma to which generative AI has destabilized assumptions underpinning the sector.
David Zhu, an ex-DoorDash head of engineering, stated that after the “ChatGPT second” he regarded throughout the software program panorama — from startups to medium-sized corporations funded with non-public credit score to the most important public SaaS corporations — and noticed a seismic shift on the horizon.
“The thesis I had was that each one workflow-driven enterprise SaaS corporations shall be both disrupted or lifeless within the subsequent decade,” Zhu advised CNBC.
The SaaS mannequin, the place corporations embed themselves in worker workflows and sometimes cost by the consumer, is particularly threatened by the rise of autonomous brokers. After leaving DoorDash, the place he led greater than 200 engineers, Zhu based Reevo, an AI platform that automates company gross sales and advertising and marketing groups.
Firms constructed earlier than generative AI are weighed down by bloated staffing fashions and software program designed for a pre-AI world, based on Zhu, making it exhausting for them to rework themselves.
“Except they make a stark, 180-degree pivot to rebuild the very same factor from scratch, they will slowly fail,” Zhu stated. “What meaning is that traders would quite simply wager on new entrepreneurs at decrease valuations quite than double down on older startups.”
‘Dominoes to fall’
Many of the 20 corporations highlighted by CNBC both did not reply to a number of requests for remark or declined to remark.
A spokesperson for the drone maker Skydio — estimated by PitchBook to have dropped in worth from $2.5 billion to $509 million as of December 2025 — stated in an announcement, “This third-party hypothesis is fake and never based mostly on Skydio’s operations or the exponential progress we’re seeing in income and clients.”
In April, Skydio introduced that it had raised $110 million by present traders, elevating its valuation to $4.4 billion.
An AG1 spokesperson did not present an announcement for this text, however after CNBC’s inquiry, Reuters reported that the complement maker was seeking to promote half or the entire firm at a $2 billion valuation. That determine would come with AG1’s debt, the report stated.
After publication of this text, a spokesperson for The Farmers Canine stated that the PitchBook estimate was incorrect and that the corporate’s valuation “has solely elevated since our final funding spherical in 2022.”
If an organization hasn’t raised funding since 2021 or 2022, its unlikely it’s going to ever achieve this once more, say traders and founders. With out entry to enterprise funding or a believable preliminary public providing ramp, the almost certainly exit for a lot of fallen unicorns is an acquisition at a fraction of their previous valuation, they are saying.
“After we see corporations not elevating, it is a pink flag,” stated PitchBook analyst Andrew Akers, including that it normally means their progress is tepid and even destructive.
Whereas some startups would possibly’ve prevented fundraising as a result of they’re producing strong income, that’s the exception to the rule, he stated.
“Beneath the floor, I believe there are loads of dominoes to fall,” Akers stated.
Collapsing flooring
There have been glimmers of a reset amongst some startups this 12 months.
In February, Stash, the funding and financial savings app, was acquired by Singapore-based every part app Seize at an enterprise worth of $425 million, under the roughly $660 million that traders put into the corporate throughout its lifetime.
That very same month, one other fintech, Step, was acquired by the YouTube star MrBeast for an undisclosed quantity, main traders to invest that the acquisition value was far under the approximate $500 million the startup raised earlier than the deal.
“Many of those companies simply aren’t price that a lot anymore, which is why you are seeing them get acquired at steep reductions,” stated Ryan Falvey of Restive Ventures, which invests in fintech corporations.
Valuations have compressed by about sixfold from the 2021 peak of fifty instances future revenues, which means that an organization with the identical income is price about 85% much less in in the present day’s market than 5 years in the past, Falvey advised CNBC.
Earlier than the reset, a startup may usually be offered to a bigger expertise firm seeking to purchase the smaller agency’s engineers for roughly $2 million per coder, based on Khosla Ventures’ Kaul. A agency with 100 engineers can be price at the least $200 million to $300 million, he stated.
However that assumption, which supplied a flooring below startup valuations throughout the growth, evaporated after AI coding instruments allowed far smaller groups to construct merchandise — leaving exit alternatives few and much between.
‘OpenAI, Anthropic or Google’
The result’s that post-GPT startups are operating laps round their older opponents, based on Falvey. He known as investments remodeled the previous three years “undoubtedly the very best” his agency has made.
“We seen by 2023 that the businesses we invested in post-ChatGPT have been already making extra money than many of the corporations we invested in earlier than ChatGPT,” Falvey stated.
Generative AI could finally scale back the quantity of capital required to construct profitable software program corporations, difficult one of many core assumptions that fueled the enterprise growth of the previous decade.
The shakeout might be simply starting, because the impression of AI reverberates throughout the enterprise funding ecosystem, from enterprise to non-public credit score to public giants.
Older software program corporations, Kaul stated, nonetheless depend on enterprise fashions constructed round charging clients based mostly on the variety of staff utilizing their merchandise, an method he believes AI will undermine as corporations automate extra white-collar work.
Software program suppliers might want to shift towards outcome-based pricing fashions and AI-native infrastructure to outlive, he stated.
“The query I ask each time certainly one of them presents is, why cannot OpenAI, Anthropic or Google do that?” Kaul stated. “For many of them, the reply is, ‘They will.'”