Welcome back to The Cap Table Newsletter! This bi-weekly newsletter shares key insights on angel investing, start-ups, and investment opportunities.
This week, we’re talking about AI.
Not “AI is the future.” We already know that…
I’m talking about what happens next.
Here’s the prediction:
80% of AI startups will pivot, consolidate, or die in 2026… maybe even more.
Not because AI is slowing down. Because the market is overcrowded, the platforms are moving too fast, and the easy categories are already getting absorbed.
Let’s break it down.
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Here’s the pattern.
Every major tech cycle follows the same arc.
SPACs (2020). Crypto and NFTs (2021). Now AI (2024).
The pattern never changes:
Everyone rushes in
Capital floods the market
1,000 companies chase the same TAM
Reality hits like a brick wall
AI isn’t different.
It’s just faster.
Here’s what the numbers say.
The clearest signal that AI is overcrowded is how much capital has already been poured into it.
In 2024 alone, generative AI startups raised $56B across nearly 900 deals
In 2025, AI companies raised roughly $226B, representing nearly half of all venture funding
By the end of 2024, almost 1 in 4 new venture-backed startups were AI or machine learning companies
There aren’t a handful of AI startups.
There are thousands.
And they’re not competing for attention. They’re competing to exist.Where Secondary Supply is Coming From.
Why AI breaks companies faster than past cycles.
In most hype cycles, your biggest risk is another startup.
In AI, your biggest risk is the platform.
OpenAI ships a new model and your product becomes a feature
Google releases an API and your differentiation disappears
Meta open-sources the stack and your moat gets thinner overnight
This is why the AI shakeout moves faster than SPACs or crypto.
The underlying technology improves continuously, while distribution is already owned by a few dominant players.
Entire categories can disappear between funding rounds.
The truth.
Many AI startups are not building companies.
They’re building wrappers around capabilities that are getting cheaper and more powerful every quarter.
Wrappers don’t have pricing power. They don’t have staying power. And they don’t survive platform shifts.
That’s why “cool demo” stopped being enough.
This is where the signal becomes clear.
1. They own the workflow, not just the AI
The strongest AI companies are not selling AI.
They’re selling outcomes.
AI is embedded inside a broader system that customers rely on daily. Permissions, collaboration, data, reporting, and integrations all matter.
If removing the AI breaks the workflow, you’ve built something durable.
If it just downgrades the product, you haven’t.
2. They have distribution before AI becomes the wedge
This pattern shows up again and again.
The durable winners had users first. Then they added AI.
When AI becomes table stakes, distribution is the only edge left.
If a quarter of all new startups are pitching “AI for X,” the ones that survive are the ones who already own attention, habit, or a channel.
3. They are default alive on today’s revenue
This is where 2026 gets unforgiving.
AI infrastructure costs are real. Pricing pressure is constant. Fundraising is slower and more selective.
The companies that survive don’t rely on future scale to justify present burn.
They charge real customers for real value today. They understand their unit economics. They can operate even if capital tightens further.
One founder put it simply:
“If the AI stopped improving tomorrow, our business would still work.”
That’s the bar.
Why timing matters more than people think.
Another quiet pressure is liquidity.
Companies are staying private longer. Exit timelines are stretching. IPO windows are narrow and selective.
That means founders need durability, not just momentum.
If liquidity is farther away, your company has to hold up longer.
AI makes it easier to build fast. It also makes it easier to get replaced fast.
That gap is where most companies will fail.
What this means for founders.
If you’re building in AI in 2026:
Stop building AI products. Build products that use AI
Stop pitching novelty. Start proving retention
Stop competing with foundation model roadmaps
Start owning the workflow, the data, and the distribution
The gold rush phase is ending.
Now it’s about real companies.
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My Take
AI isn’t a bubble.
But many AI startups were built for a market that no longer exists.
2026 is the year where being impressive stops being enough.
The survivors will be obvious. They’ll be hard to replace. They’ll be hard to rip out. And they’ll already be making money.
Most won’t make it through this filter.
The ones that do will define what software looks like next.
Until next week, Elana ✌️
Resources
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