Venture capital is back. But not for everyone.

By Tyler Demasky

Through the first half of 2026, U.S. venture investment reached approximately $412 billion, compared to approximately $162 billion during the same period in 2025. That is roughly 155% year-over-year growth.

On the surface, those numbers suggest a booming fundraising market. Dig a little deeper, and a different picture emerges.

A relatively small number of large financings, particularly in artificial intelligence, are responsible for an outsized share of that growth. Rather than a return to the broad funding environment of 2021, the venture market has become increasingly divided between category-leading companies commanding larger rounds and premium valuations and everyone else competing in a much more selective environment.

As we head into Q4, here is where the market stands, what has changed since our earlier projections, and what founders and investors should be watching.

Pre-Seed: SAFEs Continue to Dominate

At pre-seed, the amount of capital being deployed has remained relatively steady, but it is being spread across fewer financings.

Approximately $3.19 billion was invested through more than 11,500 pre-seed instruments in Q2 2026, compared with approximately $3.22 billion across 14,825 instruments in Q2 2025. Average investment size increased approximately 27% year over year to roughly $276,000 per instrument.

SAFEs remain the overwhelming instrument of choice.

Approximately 93% of Q2 2026 pre-seed rounds were structured as SAFEs, representing roughly 95% of capital invested. Approximately 91% were post-money SAFEs.

Valuation caps are also moving higher. Approximately 94% of post-money SAFEs in the first half of 2026 contained a valuation cap, and for SAFE financings exceeding $2.5 million, the median valuation cap reached approximately $35 million in Q2, about 40% higher year over year.

Our earlier expectation that SAFEs would continue moving into larger pre-seed and seed-extension financings has not only been confirmed, but the shift has happened faster than anticipated.

Seed: One Stage, Two Very Different Markets

At seed, looking at a single “market valuation” is becoming increasingly misleading.

Recent software benchmarks put the median seed financing at approximately $4.1 million raised, a $24.3 million valuation, and 18% dilution.

At the upper end of the market, however, valuations look dramatically different.

The 95th-percentile seed valuation reached approximately $200.4 million in Q2 2026, compared with approximately $72.2 million in Q2 2025.

That gap illustrates one of the defining characteristics of the current fundraising environment. Strong companies can still raise significant capital at premium valuations, particularly in AI and deep tech. More traditional seed-stage companies are operating in a much more disciplined market.

For founders, stage alone increasingly tells you very little about what your company may be worth. Sector, growth, defensibility, and strategic value matter more.

Series A: The AI Premium Is Hard to Ignore

The same divide becomes even more apparent at Series A.

Recent software benchmarks put the median Series A financing at approximately $14.4 million, with an $80 million median valuation and 18% median dilution.

But Carta’s Q1 2026 data shows just how dramatically AI is changing those economics. Foundational-AI companies in the relevant sample reached median Series A valuations of approximately $300 million, compared with approximately $55 million for non-AI companies.

That does not mean putting “AI” in a pitch deck earns a premium.

Investors are increasingly distinguishing companies with genuine technical differentiation, proprietary data, defensible workflows, or infrastructure advantages from businesses simply adding AI functionality to an existing model.

Financing Terms Remain Relatively Founder-Friendly

Despite greater investor selectivity, financing terms have not broadly shifted toward aggressive investor protections.

Cooley’s Q2 2026 data shows approximately 95.8% of financings used a 1x liquidation preference, while approximately 96.4% used non-participating preferred stock.

Pay-to-play provisions actually declined from approximately 10.1% of financings in Q2 2025 to approximately 8.4% in Q2 2026. Down rounds also declined, while up rounds increased to approximately 83.6%.

In other words, investor leverage is showing up less through punitive liquidation economics and more through which companies receive capital in the first place, how those companies are valued, ownership requirements, pro rata rights, and governance.

What Investors Want at Each Stage

More capital does not mean a lower bar.

At pre-seed, investors are looking for strong founder-market fit, credible technical capabilities, a working MVP or demonstrable product and evidence that a company can build quickly. Increasingly, founders also need a convincing answer to a simple question: What prevents a larger AI platform or incumbent from replicating this?

At seed, the conversation moves toward product-market fit. Investors want to see engagement, retention, initial monetization, customer pull, improving unit economics and evidence that the company’s competitive moat gets stronger as it grows.

By Series A, investors are looking for repeatability. That includes product-market fit, predictable go-to-market execution, high-quality recurring revenue, retention, durable margins and evidence that additional capital can reliably produce additional growth.

Those expectations vary by sector. Biotech, hardware, defense and deep-tech companies may be evaluated against technical, regulatory, manufacturing or procurement milestones rather than traditional SaaS revenue benchmarks.

Where the Money Is Going

AI remains the dominant investment theme of 2026.

More than 60% of Q1 capital on Carta’s platform went to AI companies. But the opportunity is expanding well beyond foundation models.

Capital is increasingly flowing toward AI infrastructure, agents, vertical AI, robotics and physical AI, semiconductors, data centers and power and grid technology.

Defense and dual-use technology have also moved further into the venture mainstream, while space, advanced manufacturing and other infrastructure-heavy sectors continue to attract investor attention. Global space and satellite startup funding reached approximately $20.3 billion through August 2026, already setting a full-year record.

Traditional horizontal SaaS faces a more difficult environment.

Investors are paying closer attention to commoditization risk, switching costs, proprietary data, workflow ownership and margin defensibility. A conventional software product with an AI feature is not necessarily an AI company in the eyes of the market.

Fintech has improved, but the same concentration dynamic remains. Global fintech financing increased approximately 22.7% year over year in H1 2026, while deal count declined by more than 25%. More money is moving, but toward fewer companies.

North Carolina Is Following the Same Pattern

North Carolina provides a particularly interesting local example of the broader shift.

The state recorded approximately $3.4 billion in venture financing in 2025, roughly 7% growth from 2024. Approximately 166 companies received funding, while the median deal increased from approximately $1.7 million to $3 million.

The sector mix changed considerably.

Life sciences attracted approximately $1.3 billion in North Carolina venture dollars, an increase of roughly 145%. Advanced manufacturing attracted approximately $792 million, increasing more than 5,000% from a relatively small prior base.

Together, those two sectors accounted for more than 62% of North Carolina venture dollars.

The concentration continued into 2026.

The Triangle reportedly raised approximately $183.8 million across 32 deals in Q1 and approximately $855 million across 26 deals in Q2. Just five companies accounted for approximately 80% of Q2 funding.

For Q4, we expect North Carolina investor interest to remain strong around life sciences, advanced manufacturing, defense and dual-use technology, AI and data infrastructure, energy and grid technology and other industrial technologies.

The International Picture Is More Complicated

The international story is not simply that venture capital is leaving the United States.

Europe recorded approximately $25.6 billion across 1,636 deals in Q2 2026, led by approximately $9.4 billion in the United Kingdom. AI, biotech, defense and deep tech remain among the favored sectors.

China delivered one of the biggest surprises of the year. Approximately $35.1 billion was invested in China in Q2 2026, compared with approximately $4.7 billion in Q2 2025. AI, semiconductors, robotics, advanced manufacturing, alternative energy and other strategic technologies have been major beneficiaries.

Meanwhile, an earlier expectation that Saudi Arabia and the UAE could capture a larger reallocation of international venture capital has weakened. Funding, deal count and international investor participation across MENA declined during the first half of the year.

The larger story is category-specific capital formation, not a wholesale migration of venture dollars away from the United States.

How Did Our Earlier Predictions Hold Up?

Several of the trends we identified earlier played out as expected. Others moved much faster than anticipated.

AI became substantially more dominant than projected. Defense and dual-use technology accelerated. Physical AI, power infrastructure and advanced manufacturing attracted stronger investor interest. SAFEs became even more dominant at pre-seed than expected.

Traditional SaaS became more difficult to fund unless companies could demonstrate genuine AI-native differentiation or another defensible advantage.

Financing terms largely followed expectations. The 1x non-participating liquidation preference remains standard, while investor leverage has generally appeared elsewhere in the deal.

Exit markets also recovered faster than expected.

North Carolina produced one of the more notable shifts from our earlier thesis, with life sciences and advanced manufacturing becoming more important to the state’s venture market than an earlier SaaS- and AI-heavy outlook suggested.

What We Expect in Q4 2026

Heading into the final quarter of the year, we expect the defining characteristics of the 2026 market to remain in place.

AI should continue to command an outsized share of venture capital, while physical AI, robotics, defense, space, advanced manufacturing, data centers, semiconductors and energy infrastructure remain attractive.

SAFEs should remain the standard instrument at pre-seed, and 1x non-participating preferred stock should remain predominant in priced rounds.

High-quality seed and Series A companies should continue to command strong pricing. Companies outside favored categories may find the fundraising environment significantly more difficult than the headline venture totals suggest.

The biggest question is whether commercial performance can catch up with the extraordinary valuations being placed on some AI companies.

If revenue, adoption or margins begin missing expectations, valuation pressure at the top of the market could eventually work its way down into seed and Series A financings.

The Bottom Line

Venture capital has clearly returned in aggregate. Access to that capital, however, is becoming increasingly category-dependent.

The market is rewarding technical differentiation, speed, defensibility, capital efficiency and category leadership. It is also increasingly rewarding businesses positioned around AI and the physical infrastructure required to support it.

So, the defining story of 2026 is not simply that there is more venture capital available, but that capital is concentrated among fewer perceived winners.

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Sources

This report draws from venture financing and market data published by KPMG Venture Pulse, Carta, Cooley, Crunchbase, CED, NC IDEA, PitchBook/NVCA, Technical.ly and MAGNiTT. Because these organizations use different datasets, methodologies and definitions, figures from separate sources are presented independently rather than combined. Forward-looking Q4 statements reflect market analysis and projections rather than reported results.

KPMG Venture Pulse, Q1 2026
KPMG Venture Pulse, Q2 2026
Carta, State of Pre-Seed: Q2 2026
Carta, SAFE Valuation Caps: Q2 2026
Carta, State of Private Markets: Q1 2026
Carta, 2026 Fundraising Benchmarks
Cooley, Q1 2026 Venture Financing Report
Cooley, Q2 2026 Venture Financing Report
Crunchbase, H1 2026 Global and North American Funding
Crunchbase, 2026 Physical AI Funding
Crunchbase, 2026 Fintech Funding
Crunchbase, 2026 Space Tech Funding
CED, 2025 North Carolina Venture Report
NC IDEA, Q2 2026 Tweener Fund Report
NC IDEA, Spring 2026 SEED Grant Awards
PitchBook/NVCA, Venture Monitor
Technical.ly, Triangle Q1 and Q2 2026 Venture Funding
MAGNiTT, 2026 MENA and Saudi Arabia Venture Investment Trends