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In Ferris Bueller’s Day Off, Matthew Broderick famously winks straight into the camera: “Life moves pretty fast.”
Life does move fast, but AI might move even faster. I talk to VCs all day, and it recently occurred to me: Though venture capital’s meant to be the long game, AI is moving so quickly that it’s making deals that looked good in 2024, obsolete by 2026.
“No doubt that AI is changing really fast, and it’s changing the half-life of a thesis,” said Eric Archer, cofounder of VC firm Monashees.
So, I’ve been wondering: If you’re an investor right now, what does it even mean to do a responsible portfolio review? How many companies that looked great in 2023 or 2024 are now just toast?
“The two categories that have some amount of insulation are regulated license businesses and businesses with proprietary data that’s difficult to access,” said Kamran Ansari, founder and managing partner at Kapital Ventures, and venture partner at Infinity VC. “Absent those two things, everything else feels exposed.”
Portfolio review is the process in which an investor or firm sits down and assesses the health (or lack thereof) of all the companies they’ve backed. Any portfolio review, in this environment, is necessarily nuanced, said Lily Lyman, managing partner at Underscore VC.
“Portfolio reviews right now aren’t just a question of ‘are you performing?’ or ‘are you not performing?’ Or ‘are you on track or off track?’” she told Fortune. “It’s more like: What track are you on, and what does that mean?”
Lyman says there are essentially four lanes for startups right now: the soaring AI consensus bets, efficient-growth companies, companies with paths to product‑market‑fit in tough industries, and the companies caught in the crosshairs by OpenAI and Anthropic.
“In that fourth bucket, the market’s shifted so much in terms of what’s possible with Claude or any of the models, that [the startup’s] fundamental value prop is no longer as valuable as originally thought,” said Lyman. “So, the question becomes: Do you have something that’s valuable? If so, is it people? Is it a product? Is it distribution? What do you lean into in order to try to recoup value?”
Of course, startups fail all of the time. It’s part of the model and the power law, VC’s golden rule, dictates that there only need to be a few home-run victors. But in the AI bubble, even the winners of a few months ago don’t always stick. Take Perplexity.
“Perplexity is one of those funny companies where it was so molten-lava-hot,” said Ansari. “I don’t think it’s that special anymore because Google caught up extraordinarily fast. Now, their AI-powered search is pretty good. So, why am I going to Perplexity? It’s harder to say.”
Zachary Aarons, cofounder at MetaProp, has been tracking the SaaSpocalypse, and for all software companies, there’s a common thread: You agentify or die.
“The companies that figure out how to agentify their own platform are going to make it because there are certain mission-critical industries, like construction, where they don’t really want to be just screwing around with the foundation model products for everything,” said Aarons.
Ansari referenced an onstage conversation I had at Fortune Brainstorm Tech with private equity titan Robert F. Smith, who told the audience that a small (but real) portion of his software companies, amid AI-fueled changes, no longer have a right to exist. He gets at the key implicit question in all this: What’s normal venture mortality here, and what portion of startups are specifically falling prey to the AI bubble’s speed?
“In my portfolio, I’d say it’s 10–20% in addition [to normal venture dropoff] that sort of feel very vulnerable right now,” said Ansari.
One early-stage VC, who spoke on the condition of anonymity, concurred that about 10% of their portfolio is specifically imperiled by foundation model shifts.
Now, you may be a founder reading this, wondering: Am I in this category? If you are, Ansari had a relatively spicy suggestion: Just return investors’ cash and move on.
“As an investor, I’d welcome more companies saying: ‘you know what, we’re 18 months in, we still have a bunch of the cash, it’s not going to work,’” he said. “‘Why don’t I return like 60, 70 cents of your money on the dollar, and when I have something new, I’ll come back to you to raise money again.’ …That, as an investor, leaves a better taste in your mouth than somebody taking the gas tank to zero and then sending you the inevitable email that says, ‘I tried everything I could. It didn’t work. It’s a zero.’”
For investors right now, it’s probably a good time to take stock, because everything will change again soon enough. And, as Ferris Bueller also says in that famous scene: “If you don’t stop and look around once in a while, you could miss it.”
See you tomorrow,
Allie Garfinkle
X: @agarfinks
Email: [email protected]
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This story was originally featured on Fortune.com
