AI startups are raising massive funding rounds, creating substantial 'fortress balance sheets'. Investors are advising leading AI companies to prepare for more challenging market conditions. Despite a surge in AI startup funding, venture capital firms face difficulties in securing exits. The focus is shifting towards companies demonstrating distribution advantages, strong unit economics, and rapid customer ROI, rather than just innovative demos. Venture capitalists are favouring companies with repeatable sales engines and proprietary workflows. Mega-rounds are becoming less frequent, with Series A and B funding rounds prioritising companies showing unmistakable momentum, high net revenue retention, and disciplined spending. The US dominates the AI funding landscape, particularly Silicon Valley, while European hubs struggle to match the scale of US startups. AI's influence extends beyond software, impacting sectors like energy, where companies are adapting to support the power-hungry data centres required by the AI industry.
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