Artificial intelligence continues to dominate venture capital headlines — and cheques — but a new report from Silicon Valley Bank (SVB) warns the surge in AI investment is masking a growing divide in the startup ecosystem, with many non-AI ventures starved of capital and so-called ‘zombiecorns’ now on the rise.
According to SVB’s State of Enterprise Software report, published Tuesday, AI-focused venture funds accounted for 40% of all U.S. VC fundraising in 2023, up from just 10% two years earlier. In enterprise software alone, AI startups attracted 45% of investment, compared to just 9% in 2022.
Much of this is being driven by megadeals — funding rounds of $100 million or more — with AI giants like OpenAI and Anthropic capturing nearly half of all cash raised in the category.
“Exclude AI investment and the story changes,” the report warns. “There is no meaningful uptick for companies not leveraging AI, with investment from this group essentially flat for the last year.”
The wider market continues to suffer from tight exit conditions, a hangover from the inflation surge and interest rate hikes that began in late 2021. While there are signs of life in the tech IPO market — eToro’s recent Nasdaq debut and Hinge Health’s upcoming listing offer some encouragement — momentum remains largely concentrated in AI.
AI infrastructure firm CoreWeave, for example, saw 420% revenue growth in its first earnings report as a public company, sending its stock up 56% in a week. But similar IPO successes remain few and far between, especially outside of the AI space.
Many of the biggest AI players, including OpenAI, Anthropic, Perplexity, and Scale AI, have no immediate plans to go public, despite commanding sky-high private valuations. Their continued appetite for billions in infrastructure investment — with no near-term returns — has made it difficult for venture firms to realise gains, leaving little left to support startups in other sectors.
This imbalance has helped fuel the rise of the ‘zombiecorn’ — a term SVB uses to describe startups that have raised substantial capital but lack sustainable revenue growth or viable business models.
“Many run the risk of ending up in no man’s land,” the report notes.
Tom Glason, CEO and co-founder at ScaleWise, said the report highlights a growing problem in the AI investment boom.
“The SVB report highlights a harsh truth: the AI boom has fuelled a wave of overfunded startups that look healthy on the surface, but are commercially hollow underneath,” Glason said. “These so-called ‘zombiecorns’ raise huge rounds but fail to build sustainable revenue or viable unit economics.”
Glason argues that too many founders are mistaking capital raised for market traction — a costly error in a market that increasingly demands disciplined go-to-market strategies, not just product hype.
“The gap is widening between well-funded AI startups and those actually ready to scale,” he added. “In today’s market, growth alone isn’t enough. Without a clear Ideal Customer Profile, repeatable sales motion, and structured execution, even the most hyped AI company risks becoming a cautionary tale.”
Hopes that President Trump’s return to the White House would boost the startup scene — via tax cuts and deregulation — have been tempered by his aggressive new tariff policies, announced in April. Several companies have already delayed planned IPOs in response to the uncertainty.
SVB, now part of First Citizens Bank following its collapse in 2023, concludes the report by saying that a return to robust exit activity is essential to reignite venture returns and fuel the next wave of startup growth.
For now, though, AI remains the hottest ticket in town — but one that increasingly risks burning out those who mistake funding for fundamentals.
