Key Takeaways

  • Venture capital deal volume has plummeted to its lowest point in ten years, signaling a broad market correction.
  • Investors are bypassing generalist categories to concentrate unprecedented amounts of capital into artificial intelligence and cybersecurity.
  • The market has bifurcated into a "haves and have-nots" landscape where specialized deep tech commands premium valuations while traditional SaaS faces a liquidity crunch.

For the average founder or B2B executive watching the venture market, the numbers paint a stark picture. Fundraising activity, specifically in terms of deal count, has fallen to a decade low. The era of easy money, characterized by rapid-fire term sheets and inflated valuations for essentially any software company with a growth chart, is decidedly over.

But if you look closer, the money hasn't exactly disappeared. It has just become incredibly picky.

While the broader market contracts, two specific sectors—artificial intelligence and cybersecurity—are experiencing what can only be described as unprecedented capital concentration. We are witnessing a bifurcation of the technology landscape. On one side, there is a harsh drought for generalist B2B SaaS and consumer tech. On the other, a torrential downpour of funding is hitting companies promising to secure the enterprise or automate its cognitive load.

The Flight to Quality (and Hype)

The drop to a decade-low deal count is a necessary correction. For years, the bar for entry was arguably too low, with capital subsidizing business models that hadn't yet proven their unit economics. Now, interest rates and a focus on profitability have raised that bar.

That’s where it gets tricky. In a normal correction, you might expect a pullback across the board. Instead, we are seeing a massive consolidation of resources. Investors are frightened of missing the platform shift represented by AI, yet they are equally terrified of the macroeconomic and geopolitical risks that make cybersecurity a non-negotiable line item.

Consequently, the capital is pooling. Rather than spreading bets across five hundred promising startups, firms are writing massive checks to a handful of AI infrastructure plays and cyber defense platforms. It’s a classic flight to perceived quality, mixed with a fear of being left behind on the next major computing paradigm.

Why Cyber and AI Stand Apart

It is worth asking: why these two?

Cybersecurity has decoupled from the standard economic cycle. In previous downturns, IT budgets were slashed indiscriminately. Today, the threat landscape—ranging from ransomware gangs to state-sponsored actors—means that turning off security spend is an existential risk for the enterprise. CISOs might cut shelf-ware, but they aren't cutting active defense. Investors know this. They view cyber revenue as durable, sticky, and recession-resistant.

Then there is AI. The concentration here is driven by the sheer cost of admission. Building foundation models or the infrastructure to run them requires capital expenditure on a scale that software investors aren't used to seeing. This necessitates "unprecedented concentration." You can't fund an OpenAI competitor with a standard seed round.

It’s a small detail, but it tells you a lot about how the rollout is unfolding: notice how many pitch decks suddenly pivot to "AI-enabled" workflows. Founders are reacting to the signal. However, the concentration data suggests investors aren't buying the superficial rebrands. They are pouring money into the core technology and the security layers required to protect it, rather than the wrapper applications.

The Squeeze on the Middle

What does that mean for teams already struggling with integration debt or trying to raise a Series B for a standard workflow tool?

The implication is severe. If you are building outside of these two gravity wells, the fundraising environment is arguably harder than the headline numbers suggest. The "decade low" average is being propped up by the mega-rounds in AI and cyber. Remove those, and the activity in the rest of the market looks even quieter.

This creates a high-stakes environment for B2B leaders. The "growth at all costs" playbook is obsolete for the vast majority of sectors. Companies that successfully raised funds in 2021 are now facing a market that demands efficiency over pure speed. The capital concentration in AI and cyber sucks the oxygen out of the room for other categories, forcing those companies to rely on revenue and retention rather than the next injection of venture dollars.

A New Normal for Deal Flow

The divergence indicates that the venture asset class is maturing. The "spray and pray" approach is being replaced by a more private-equity-style rigorousness for most sectors, and a moonshot mentality for AI.

This concentration also introduces risk. When capital piles into a narrow set of assets, valuations detach from reality. We are likely seeing a bubble form within the AI sector specifically, even as the rest of the market endures a recession-like freeze.

For the immediate future, the data suggests this trend will hold. Deal counts may remain suppressed as investors reserve their dry powder for the few opportunities they believe can return the fund—most of which look like large language models or the shields that protect them.

Still, markets are cyclical. The current obsession with AI and cyber will eventually stabilize, and capital may begin to flow back toward broader applications. But until then, the disparity between the "haves" in deep tech and the "have-nots" in general software will continue to widen, defining the operational reality for the next generation of business technology.