It’s not your imagination: AI seed startups are commanding big numbers

Pete Martin remembers that he raised a $5 million seed round at a $25 million valuation for his AI-powered cyber security company in 2024, aka, like the “millennium of AI” ago.

That calculation seemed too high at the time, he recalled. But today, “it’s pretty common” to see a $10 million seed around $40 million to $45 million after funding, he said, especially if you’re an AI company.

In fact, this kind of thing only happens if you’re an AI company, since investors aren’t showing interest in anything else.

Recently Y Combinator Demo Day held in Marcheveryone was talking about how expensive the industry was, said Ashley Smith, a close friend of Vermilion’s original fund. Most of the startups had already secured six to seven customer contracts, including a company that was only eight weeks old, he said, so there were companies asking for $5 million at a cost of $40 million.

This time, it was more than what it was called “YC tax,” meaning how much the borrower is willing to pay for the origination passed YC, he believed. Even with the first figures he’s gotten, Smith said those who sell this market are making prices “years ahead of schedule.”

The big private equity firms, which have cash, are also already circling, raising their initial valuations and valuations in hopes of making more money if these companies go public or IPO one day. Small VC firms have an insatiable appetite for AI companies, too. As an investor focused on AI infrastructure, Smith said he can find himself at a premium, especially when a large company enters. This is one reason. why the number of sales of seeds has decreased but the calculation is higher, both founders and VCs said, with data from Carta.

Shanea Leven, the founder of the business AI application platform Empromptu, criticizes Cursor, which, in early 2025, was a hit. $100 million in revenue in just 12 months. It was one of the leading AI companies to raise the bar on how these startups could be affected, though it wasn’t the only one. Others includes Lovable, Bolt, OpenEvidence, ElevenLabsthey are all boasting about their speed. Although this is externalit is difficult for others not to feel the increased heat.

“Sellers are expecting this now,” he said. “The pressure is on, not to be a billion dollar company, but a $50 billion company.”

Faster speed, higher calculation

VCs are quick to defend the logic of rising seed prices. For example, Marlon Nichols, managing partner at MaC Ventures, said the evidence is like pulling out of the gate, driving seed prices. When he relaunched his company in 2019, he said his paycheck was $2.5 million. Today, it’s $5 million.

“The best seed companies don’t look like seed companies anymore,” he said. Advances in AI tools mean that startups can find cost-effective products and find early customers faster than ever, even in large enterprises, which are actively looking for ways to use AI.

Nichols’ last two investments were already generating more than $2 million, with “paid pilots from major corporations” and “a transparent process for all commercial contracts.” He cut checks between $3 million and $4 million, and agreed to earn $25 million and $30 million post-money, respectively, which is more than a few years ago.

The co-founders’ backgrounds also contributed to their contributions to the paper. “He had significant experience” and “a track record of execution,” he said, “which reduced the initial risk.”

In addition, investors are willing to pay astronomical sums for proven AI talent, favoring second-time startups or those with a suitable pedigree from a previous employer (eg OpenAI). This, in turn, results in the expected numbers for the whole group.

“There is a war of big researchers right now, and I don’t think it’s good or bad; it’s the current state of the market,” Amber Atherton, an assistant at the first consumer fund Patron, said.

This is what is driving the number of seed counts, such as the former $2 billion OpenAI seed Mira Murati of Thinking Machine Labs. cost of $ 12 billion.

Leven, a second-time founder, said his current startup count is double that of his first startup. Not only is his latest AI company, but it has more traction than his previous startups at this point, showing how quickly new companies like his can grow.

“Right now I have a couple of contracts for six people, and I’m closing on seven people. You have to have that to get promoted,” Leven said. “My friend is also upgrading the same, not AI, and it took him two years versus my three weeks, to get half of what I got.”

Pre-seed is a new seed

Seed VCs like Vermilion’s Smith are combating rising seed prices by doing more seeding. Seed startups are the kind of startups that the seed industry was years ago: very early, before money.

Jonathan Lehr, a general partner at Work-Bench, is spending $160 million focused on food, although he said the company has “become comfortable” with entering early-stage crops as the industry grows rapidly.

It’s more common to see investors pour in early-stage startups, because the exposure is limited to the value of “acquiring companies that have the potential to grow quickly and become leaders in the industry,” Lehr explained.

Atherton, meanwhile, said that in order to take part of these initial initiatives, the amount of checks for his company’s $100 million Fund II is now from $4 million to $5 million, from $1 to $2 million for his Fund I of $90 million.

“AI has raised the bar even higher for startups to have products with users and revenue out of the gate,” he said.  “Marketers need to move quickly and document what’s happening in the world much earlier because successful startups are delivering products and users and revenue immediately.”

So seed VCs aren’t “supporting ideas” anymore, they’re “supporting early proof of what consumers want,” he said. Seed VCs are also moving quickly, “from slow persistence to definitive decisions on distribution, retention, and startup flavor.”

But there is a catch

As things have increased, so have investors’ expectations.

It’s not enough, Atherton said, for a company to simply manufacture and ship a product. Anyone can do that these days. There aren’t even any pulls, although that helps a lot. It’s about the future, the founders can talk about how they will be able to kill better than anyone else and beat everyone in the market. This is what these seed VCs believe will turn these startups into sustainable, $50 billion+ companies, or profitable spin-offs.

“People are just trying to survive the crisis,” said Leven. “Otherwise, you won’t have enough money to grow, to compete.”

The advantage of raising a large amount of capital early as a startup is that it helps the company move quickly and recruit valuable talent. VCs know, when they buy their papers, that talent in the age of AI is expensive, as it is using the AI ​​models that support these startups, arguing with other competitors, sometimes SaaS giants with billions.

Everyone, Leven said, is trying to recreate the magic of Google is buying Wiz. But the risk is also high. Startups need to grow their companies into businesses that accept early valuations before seeking capital. Series A investors are also expecting bigger, faster, and more.

Nichols and his company are now recruiting more small companies than ever before, with renewed hope that they will be successful within 18 months. “That discipline is as important as the success,” he said.

Higher seed counts mean less error, Lehr said, adding: “Less testing, less tolerance for pivots, and checking if progress is not consistent with the capital raised.”

Martin, a cybersecurity startup, successfully raised its Series A at the end of last year, saying the brand was too difficult for his company to pull off. But he also had a warning for the founders.

“You can be in the middle,” Martin said. “It’s too expensive for new investors, but without the attraction to justify the next phase.”