Startups and VCs in 2026: What Investors Say Founders Must Prove, Where Capital Is Moving, and Whether IPOs Return

Fundraising is getting tougher in some categories, but investors still see 2026 as a year of opportunity for startups that can show durable growth, defensible distribution, and clear proof that their products create real value. Across early-stage AI apps, global venture markets, and long-delayed liquidity events, the expectations are shifting from “big vision” to measurable execution.

What it will take to raise venture funding in 2026

Several investors interviewed expect capital to remain available for standout companies, but they also anticipate a higher bar than in 2025—especially in crowded AI application categories where money has already flooded in.

From “visionary” to “battle-tested”

James Norman, Managing Partner, Black Ops VC, argues that the fundraising narrative has changed. In his view, capital used to function as a moat, but investors are now wary of “pilot purgatory,” where enterprises experiment with AI products without feeling urgency to purchase. For 2026, he expects founders to demonstrate more than early traction: they should prove a repeatable sales motion and a true distribution advantage.

Norman says investors are digging into whether a company has proprietary workflows or processes, along with deep subject matter expertise that can withstand a “capital arms race.” Being first to market with an impressive demo matters less than building a product that can earn trust and scale over time.

Fewer mega seed rounds in crowded AI apps

Morgan Blumberg, Principal, M13, expects that top founders will still be able to raise, but he predicts the bar will rise. In early-stage rounds—particularly AI application software—Blumberg anticipates fewer mega seed financings because competition is intense and large amounts of capital have already been deployed across many categories.

To stand out, Blumberg believes founders will need more than a big market and a strong resume. Differentiation could come from unusual distribution channels or distinct perspectives. At Series A and Series B, he says top-quartile rounds will require evidence of “explosive momentum,” while investors apply heavier scrutiny to whether revenue is sustainable.

“Bigger, faster, better” and a credible forward trajectory

Allen Taylor, Managing Partner, Endeavor Catalyst, summarizes what he’s looking for as: bigger total addressable market, faster growth, and better unit economics. Taylor notes Endeavor Catalyst made 50 investments last year across 25 countries, and expects to do more, giving the firm exposure to founders across different stages and geographies.

He says revenue and customers remain important, but they’re not enough by themselves. Taylor frames the fundraising test as a forward-looking question: where is the company today, and where could it realistically be in the next 12, 18, or 24 months? Founders who can answer that clearly and credibly, he suggests, are more likely to raise.

Generative AI lowers the build cost—so defensibility matters more

Dorothy Chang, Partner, Flybridge Capital, points out that generative AI coding tools have made it easier for many founders to build products quickly. But because those tools are widely available, she argues they also “level the playing field,” raising competitive intensity.

Chang says venture-scale founders should ensure they are:

Working on a truly big idea, not merely something that’s easy to “vibe code.”
Building in a problem area where they are uniquely positioned to win.
Creating something proprietary that’s hard to replicate—such as unique insights, proprietary data access, deep networks and relationships, or a technological advantage.

In her view, these are familiar principles, but the expectations behind them are higher than ever.

Enterprise AI must show line-of-sight ROI

Shamillah Bankiya, Partner, Dawn Capital, emphasizes that enterprise buyers have become far more sophisticated about AI’s potential benefits. For founders selling to enterprises, she expects that proving a clear line of sight to ROI will become even more central—not only to winning customers but also to convincing investors. Founders who can demonstrate meaningfully higher value, she argues, will have the best chance of raising capital.

Where investors want to deploy capital in 2026

While AI remains a dominant theme, the investors highlighted a range of strategies—from betting on deep domain expertise to hunting for opportunities outside the U.S., and from legacy industries to the emerging intersection of software and hardware.

“High-context founders” with day-zero distribution

Norman says Black Ops VC is industry-agnostic, but increasingly focused on what he calls “high-context founders.” As AI commoditizes code generation, he believes lived experience inside complex industries becomes a key edge.

His ideal founder has spent years “in the trenches,” bringing bespoke expertise that can be amplified by AI, paired with a “day zero” distribution advantage—knowing not just what to build, but exactly who will buy it.

Legacy sectors, AI infrastructure, and frontier research

Blumberg says M13 is interested in “sleepy” or legacy industries that are often overlooked by core tech founders. He argues that in these markets, AI can produce step-change ROI that drives adoption, while competition is lower and moats can emerge from complexity.

He also expects 2026 to be strong for infrastructure that supports foundational model development, as well as frontier categories such as embodied AI and world models. He adds that healthcare remains a major focus due to signs of buyer demand, with an emphasis on systems of record and platforms rather than point solutions.

Venture returns are increasingly global

Taylor’s focus is “outside the United States,” arguing that the best risk-adjusted venture returns are no longer concentrated in Silicon Valley. He specifically mentions markets like Poland, Turkey, and Greece.

He also points to a broader shift: about 20 years ago, roughly 90% of venture dollars went to the United States, but he says that flipped in 2018. Today, Taylor notes, more than half of venture investment—and more than half of the world’s unicorns—are outside the U.S.

In Endeavor Catalyst’s pipeline, he says it’s increasingly normal to see globally distributed founder stories, including examples like founders from Venezuela building in Iraq, or founders from Sudan building global businesses.

Beyond workflow automation: seeking platform shifts

Chang says she is most interested in founders addressing massive problems and using technology to drive forward progress. She is less excited by the volume of startups focused on “agentically automating workflows” for specific verticals, and more focused on broader platform shifts that could define the era.

The next frontier: software + hardware

Bankiya argues that AI has already had a major impact on software, and expects the next frontier to sit at the intersection of software and hardware. She notes that much of the world’s GDP is tied up in physical industries, and believes software-only solutions won’t be enough to fully unlock growth potential.

Will the IPO market thaw in 2026?

Opinions vary on timing and triggers, but multiple investors see reasons the IPO market could reopen, including the pressure created by years of delayed liquidity and a backlog of companies ready to list.

A system running out of alternatives

Norman expects the IPO market to thaw, not necessarily because conditions become perfect, but because the ecosystem may have fewer workable options. He argues the private market is straining to support multibillion-dollar valuations that can be disconnected from profitability or liquidity, after years of “paper markups.”

He also points to private credit as a stopgap that extends runway without forcing valuation discipline. In Norman’s view, debt can delay hard decisions but can’t resolve structural capital needs for companies designed for equity-driven growth. Eventually, he suggests, companies will need fresh capital at scale—and public markets remain the place that can provide it, along with price discovery and liquidity.

A backlog and the pull of “mega IPOs”

Blumberg expects a reopening driven by the queue of companies planning to list. He cites anticipated large tech IPOs and specifically names Anthropic and OpenAI, arguing that one mega IPO could spark momentum for others.

A global reopening—including Saudi Arabia

Taylor also expects 2026 to be a big year for IPOs in New York as dozens of companies decide “it’s time.” But he adds that the thaw could be more global than many assume, including notable tech IPOs in places investors may not expect—such as Saudi Arabia.

He notes that nearly four years of muted IPO activity has created a backlog of high-quality companies ready to go public, and he expects it won’t be only U.S. firms taking advantage when the window opens. He points to existing U.S.-listed technology companies from Latin America, including MercadoLibre and Nubank, and suggests another wave could follow that public markets have not fully priced in yet. He does not expect all of them to list in 2026, but believes several will.

Locally, Taylor highlights the potential impact of meaningful tech IPOs on the Saudi Stock Exchange (Tadawul). He suggests that if companies like Tabby (a buy now, pay later outfit) go public locally, it could reshape assumptions about where global tech outcomes can occur.

What could delay the reopening?

Bankiya is more cautious, arguing that a “hard catalyst” might be needed to reset IPO markets—something like mega AI players encountering unprecedented cost increases or sharp revenue declines. She gives an example scenario: if energy prices rise sharply, making compute for AI training and inference unaffordable.

How fund managers are positioning for the 2026 venture market

Beyond individual deals, the investors also describe how they expect the venture industry itself to behave in 2026—from LP dynamics to portfolio strategy and the growing role of secondaries and M&A.

A “clearing event” and tougher conditions for undifferentiated managers

Norman describes 2026 as a “clearing event” that will separate durable platforms from transient ones. He expects pressure on Fund I managers who haven’t found their footing and on active Fund II managers dealing with a distributions-paid-in-capital (DPI) drought from 2021 vintages.

He adds that traditional institutional anchors, particularly university endowments, are in “repair mode” after being squeezed by the lack of liquidity in 2021 and 2022. Norman says many are leaning on secondaries, pacing adjustments, and portfolio-smoothing strategies to maintain commitments—leading to fewer new relationships and less tolerance for emerging or undifferentiated managers.

In their place, he sees family offices becoming more active market forces, shifting from passive LP roles into direct mandates and using registered investment advisors to seek differentiated, high-conviction strategies. Norman’s bottom line: in 2026, he sees “no viable middle ground”—managers need a defensible track record and/or “unfair” access to differentiated deal flow.

AI transformation as a strong vintage, but selectivity matters

Blumberg says M13 views the market as still early in the AI transformation, which could make 2026 a strong vintage. However, he expects capital to continue concentrating into a smaller number of winners. That dynamic, he says, increases the importance of being selective and offering operational support to portfolio companies.

He adds that M13 is advising portfolio companies to strengthen balance sheets in case 2026 brings a downturn, while staying focused on long-term building rather than optimizing for rapid fundraising.

A broader “liquidity toolkit”

Taylor calls 2026 an “amazing time” to back founders building for the next 10+ years. As a fund manager, he sees strength both in deployment and liquidity. He notes Endeavor Catalyst had 12 liquidity events last year, all through M&A and secondaries.

He argues this matters because venture has expanded dramatically over the past two decades, while liquidity pathways did not scale at the same rate. Taylor says that is now changing as venture develops a more complete liquidity toolkit—M&A, secondaries, and IPOs working together—which better fits the reality that founders may commit 10, 15, or even 20 years to building companies.

He also points to structural changes in core sectors, highlighting financial technology and saying stablecoins moved from experimentation to mainstream adoption in 2025, especially in markets like Latin America and Africa. In those regions, he frames stablecoins not as speculative tech, but as infrastructure—one reason he expects 2026 to be strong for deploying capital.

Europe remains a hunting ground for exceptional founders

Bankiya says Dawn Capital is continuing its search for phenomenal European founders building groundbreaking companies, emphasizing that great companies can be formed in any cycle.

What happens to AI interest in 2026?

Investors expect the AI wave to continue, but they also anticipate a shift in what “wins” as markets mature—from experimentation and demos toward ROI, scale, and consolidation in crowded categories.

From model-building to business-building

Norman predicts that 2026 will mark a move from “AI curiosity” to demand for real application and scale. In his framing, the market is transitioning from an era dominated by building models to an era focused on building businesses. He argues the standout companies won’t necessarily be those training the largest LLMs, but those applying AI to high-value, domain-specific problems that were previously too complex or too manual to scale.

He adds that investors are no longer simply looking for “AI startups,” but for strong technology founders using AI to increase efficiency by 10x in massive, traditional markets.

Consolidation in saturated AI categories

Blumberg expects investor and startup interest to stay at all-time highs, but anticipates “tuck-in acquisitions, acquihires, and wind-downs” in heavily concentrated areas such as coding automation, sales automation, marketing, and advertising, as market share consolidates into a smaller set of assets.

Conclusion

For 2026, investors are signaling that the winners will be founders who can translate AI capability into measurable ROI, pair product execution with strong distribution, and build defensible companies in an increasingly competitive environment—while the venture ecosystem itself looks toward a more global opportunity set and a potentially broader return of liquidity.

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Based on reporting originally published by TechCrunch. See the sources section below.