What The Record Venture Funding Quarter Actually Means For Your Startup’s Fundraise

Crunchbase just reported that $300 billion flowed into startups in Q1 2026, the biggest quarter in venture history. The eye-popping subtext? Four companies absorbed $188 billion of that, or 65%. If you’re a seed-stage founder reading those numbers, it’s easy to feel like the market is passing you by.

Look closer, and the story changes completely. Early-stage funding was up 41% year over year. AI/ML deal count rose to 6,678 in 2025, up from roughly 5,600 the year before. More companies are getting funded at the early stage, not fewer.  The concentration at the top? That’s an infrastructure play. The application layer looks entirely different.

Build vertical, not horizontal

The real signal is in the shift from horizontal to vertical. Redpoint’s 2026 Market Update shows horizontal SaaS down 35% over the past 12 months while vertical SaaS is essentially flat (up 3%). That divergence matters for founders deciding what to build.

Horizontal software (project management, general productivity, collaboration) is commoditizing fast as AI agents handle coordination natively. But vertical software? That’s where proprietary data shines and industry-specific compliance workflows matter. AI makes the first category less valuable and the second category more valuable.

If you’re starting a company right now, the data says: Pick an industry, not a feature. Claims processing in insurance, scheduling in healthcare, compliance in financial services, job costing in construction. These are workflows where software penetration has been shallow for decades because the problems were too specific for horizontal tools. AI changes that math.

Build for the $6T, not the $500B

The addressable market for software is expanding, not contracting. In Redpoint’s CIO survey, 58% cite AI as the top driver of increased software spend. As agents move from copilot features into autonomous workflow execution, the addressable market grows from roughly $0.5 trillion in current U.S. enterprise software spend toward $6 trillion or more, because AI starts capturing portions of the knowledge-worker payroll that software never could.

This is classic Jevons’ Paradox: When a resource gets dramatically cheaper to produce, consumption goes up. AI makes software dramatically cheaper to build, deploy and maintain. Suddenly, job costing for midsize contractors pencils out. Inventory optimization for independent pharmacies becomes economically viable. The cottage industries that enterprise software ignored for decades? They’re all in play now.

Build for acquirability, not just IPO optionality

But let’s talk about exits, because that’s where the rubber meets the road. The IPO market remains largely closed. In 2025, roughly 2,300 VC-backed startups were acquired compared to just 65 IPOs, per Crunchbase data.

LPs have seen nearly $200 billion in cumulative negative net cash flows since 2022. The pressure to return capital through M&A is real and growing.

Smart founders are building for this reality from day one. They’re building products that integrate into existing enterprise stacks, accumulating proprietary data that makes them expensive to replicate and cheap to integrate. Strategic acquirers in insurance, healthcare, logistics and financial services are actively buying vertical software companies. Why? Because these buyers can’t build this stuff internally — they lack the talent, the focus, and frankly, the DNA.

Start with the workflow, not the technology

So while everyone’s mesmerized by the infrastructure megarounds, the real opportunity is staring us in the face. Pick a specific industry workflow that’s still manual or stitched together with Excel. Build the AI-native solution that actually works for that vertical. Get to revenue before the market catches up.

The record quarter and the shrinking fund base are telling the same story from different angles. Infrastructure capital is concentrating at the top while the application layer is wide open for those willing to roll up their sleeves and solve real problems for real industries. That’s where I’m putting capital, and that’s where smart founders should focus their energy.

As the co-founder and managing partner of MGV, Marc Schröder is committed to establishing MGV as the premier venture firm for world-class tech entrepreneurs to accelerate their visions. Under Schröder’s stewardship, MGV has swiftly ascended to a top-quartile firm, surpassing the performance of 95% of venture funds. The performance of MGV is driven by Schröder’s unique approach to venture investing — that providing intensive sales training, devising robust fundraising strategies and securing follow-on investments is the best way to support founders and drive the deepest return for investors. Business Insider has recognized him as one of the Top 100 global seed investors, and his perspectives are published regularly in Crunchbase News and other leading publications.

Related reading:

• These 3 Charts Show How Venture Capital Has Concentrated At The Top In 2026
• Q1 2026 Shatters Venture Funding Records As AI Boom Pushes Startup Investment To $300B

Illustration: Dom Guzman