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Pete Martin remembers raising a $5 million seed round at a $25 million post-money valuation for his AI-powered cybersecurity company Realm way back in 2024, aka, like a thousand “AI years” ago.
That valuation seemed high for that amount at the time, he recalled. But today, “it’s pretty typical” to see a $10 million seed round at a $40 million to $45 million post-money valuation, he said, especially if you are an AI company.?
Actually, that type of thing happens only if you are an AI company, as investors are showing little interest in anything else.
At the most recent Y Combinator Demo Day held in March, everyone was talking about how high the companies were priced, said Ashley Smith, a general partner at the early-stage fund Vermilion. Many startups had already landed six- to seven-figure customer contracts, including a company that was only eight weeks old; she said there were companies asking for $5 million at a $40 million post money.
This time, it was more than the so-called “YC tax,” meaning how much more an investor is willing to pay just because the startup went through YC, she believed. Even with those early revenue numbers, Smith said investors in this market are pricing rounds “years ahead of traction.”
The big venture firms, flush with cash, are also moving into rounds earlier, driving up startup prices and valuations in hopes of cashing in big if these companies exit or IPO one day. Smaller VC firms have an insatiable appetite for AI companies, too. As an investor focused on AI infrastructure, Smith said she can easily find herself priced out of a round, especially when a larger firm moves in. That’s one reason why seed deal count is down but valuations are up, both founders and VCs said, and data from Carta shows.
Shanea Leven, founder of the enterprise AI application platform Empromptu, blames Cursor, which, in early 2025, hit $100 million in revenue in just 12 months. It was one of the first high-profile AI companies to raise the bar for how fast these startups could gain traction, although it certainly wasn’t the only one. Others include Lovable, Bolt, OpenEvidence, ElevenLabs, all boasting about their fast traction. Though these are outliers, it’s hard for some not to feel the reverberated heat.
“The investors are expecting that now,” she said. “The pressure is at an all-time high, not to be a billion-dollar company, but a $50 billion.”?
VCs are quick to defend the rationale of rising seed valuations. For instance, Marlon Nichols, managing general partner at MaC Ventures, said the proof is in the form of traction right out of the gate, driving seed pricing. When he launched his firm back in 2019, he said his average entry check was $2.5 million. Today, it’s $5 million.?
“The best seed-stage companies do not look like traditional seed-stage companies anymore,” he said.?The advancement of AI tools means that founders can get to minimal viable products and gain early customers faster than ever before, even among big enterprises, which are eagerly looking for ways to employ AI.
Nichols’ last two seed investments were already generating more than $2 million in revenue, with “paid pilots from large enterprises” and “a clear line of sight to full commercial agreements.” He cut checks between $3 million and $4 million, and agreed to value the startups at $25 million and $30 million post-money, respectively, which is a lot compared to a few years ago.
The founders’ backgrounds also played a role in his term-sheet offers. “They had relevant experience” and “a track record of execution,” he said, “which reduced a lot of that early-stage risk.”
Plus, investors are willing to pay astronomical premiums for proven AI talent, favoring second-time founders or those with the right pedigree from the right previous employer (like OpenAI). This, too, brings up expected valuations across the board.
“There’s a war for great researchers right now, and I don’t think it’s good or bad; it’s just the current state of the market,” Amber Atherton, a partner at the early-stage consumer fund Patron, said.?
That’s what is driving the most extreme seed valuations, like ex-OpenAI Mira Murati’s $2 billion seed for Thinking Machine Labs at a $12 billion valuation.?
Leven, a second-time founder, said her startup’s valuation at this stage is double that of her first at a similar stage. Not only is her latest company AI, but it also has much more traction than her previous startup did at this time, showing how fast new companies like hers can grow.?
“I currently have multiple six-figure contracts, currently closing a seven-figure. You have to have that to raise,” Leven said. “A friend of mine is raising a similar round, not AI, and it took her two years versus my three weeks, to get half of what I got.”?
Seed VCs like Vermilion’s Smith are dealing with the rise in seed valuations by doing more pre-seed deals. Pre-seed startups are the kind of startups that seed companies used to be years ago: very early, pre-revenue.
Jonathan Lehr, a general partner at Work-Bench, is investing out of a $160 million fund focused mainly on seed rounds, though he said the firm has become “increasingly comfortable” going in at pre-seed as companies scale much faster.
It’s more common to see investors pour capital into startups earlier, as increased exposure is just the price of “accessing companies that have the potential to scale faster and become category leaders,” ?Lehr described.
Atherton, meanwhile, said to get a piece of these promising early-stage startups, the average check size for her firm’s $100 million Fund II now ranges from $4 million to $5 million, up from the $1 to $2 million for its $90 million Fund I.
“AI has raised the bar that much higher for founders to have a live product with users and revenue straight out of the gate,” she said.? “Investors have to move faster and underwrite real-world traction much earlier because the best founders are shipping products with users and revenue almost immediately.”
So seed VCs aren’t “backing ideas” anymore, they are “backing early evidence of real consumer product demand,” she described. Seed VCs are also moving faster, “from slow diligence to high-conviction decisions on distribution, retention, and founder taste.”
As the stakes have risen, so have investors’ expectations.?
It’s no longer enough, Atherton said, for a company to simply build and ship a product. Anyone can do that these days. It’s not even about the traction, though that helps a lot. It’s about the future, the story founders can tell about how they will be able to execute better than everyone else and defeat everyone in the market. That’s what these seed VCs believe will drive these startups into durable, $50 billion+ companies, or at least to some sort of profitable exit.
“People are just trying to survive the pressure,” Leven said. “Otherwise, you won’t have enough money to grow, to actually compete.”?
The good part about raising a lot of money at the earliest stages as a founder is that it helps the company move fast and hire expensive talent. VCs know, as they price their term sheets, that talent in the age of AI is costly, as is running the AI models that underpin these startups, and vying with other well-capitalized competitors, sometimes big SaaS competitors already worth billions.
Everyone, Leven said, is trying to re-create the magic of Google buying Wiz. But the risk is also higher. Founders must grow their companies into businesses that justify the high early valuations before they need more cash. Series A investors are also expecting bigger, faster, and more.
Nichols and his firm are now underwriting more young companies than ever, with the new expectation that they’ll hit their milestones within about 18 months. “That discipline is just as important as backing winners,” he said.
Higher seed valuations mean less margin for error, Lehr said, adding: “Less room for experimentation, less tolerance for pivots, and more scrutiny if progress doesn’t match the capital raised.”?
Martin, the cybersecurity founder, successfully raised his Series A late last year, saying the benchmark was unproblematic for his company to clear. But he, too, had a warning for founders.
“You can end up stuck in between,” Martin said. “Too expensive for new investors, but without the traction to justify the next round.”?
