AI Disruption: The Collapse of Pre-ChatGPT Startups and Venture Market Reckoning]

Five years ago, venture capitalists flooded American startups across sectors — from lingerie subscriptions to scheduling software — granting billion-dollar valuations to companies that rarely turned profitable.

This era of easy money and pandemic-driven growth began cooling after the Federal Reserve raised interest rates in 2022. Yet many founders clung to hope that their companies could grow into inflated valuations, according to investors speaking with CNBC.

Then ChatGPT arrived.

“The ChatGPT moment happened when people said, ‘Holy smokes — the next generation of entrepreneurs speaks English as their coding language,’” said Samir Kaul, a partner at Khosla Ventures, an early backer of OpenAI.

“Now you’re seeing 50 engineers do what it would’ve taken 500 engineers five years ago,” Kaul said. “We had to completely resit how we valued these companies.”

While public software giants like Salesforce, ServiceNow, and Workday fell this year due to AI threats, a quieter reckoning unfolded in private markets. AI investments exceeding $250 billion into OpenAI and Anthropic ahead of their anticipated IPOs left hundreds of pre-ChatGPT startups stranded — cut off from funding due to outdated valuations and unprofitable operations.

PitchBook data shows 857 U.S. unicorns (startups valued at $1 billion+) have not raised fresh funding in three years, rendering their valuations stale. Companies last funded in 2021 lost 68% of their value on average, while 2022-funded startups fell 52%, according to PitchBook estimates.

Over 220 billion-dollar startups are now “fallen unicorns,” per PitchBook. “Many of these companies are pre-AI — in cost structure and products,” said Immad Akhund, CEO of Mercury, which provides banking services to a third of early-stage U.S. venture-backed firms. “If you’re not an AI-first company, you need really strong numbers to raise.”

Enterprise software firms like scheduling tool Calendly dominate the fallen unicorn list, reflecting both 2021’s venture boom and generative AI’s disruption of the sector. There are 75 SaaS companies on PitchBook’s list — twice as many as fintech firms.

David Zhu, former DoorDash engineering head, predicted post-ChatGPT: “All workflow-driven enterprise SaaS companies will be either disrupted or dead in the next decade.” His startup Reevo automates corporate sales and marketing using AI.

“Unless they make a stark, 180-degree pivot, they’re going to slowly fail,” Zhu said. “Investors would rather bet on new entrepreneurs at lower valuations than double down on older startups.”

The list includes Glossier, The Farmer’s Dog, Rothy’s, Brooklinen, and Savage X Fenty, along with AG1, Betterment, and SeatGeek — companies that thrived on growth-heavy, low-margin digital retail models.

They succeeded under assumptions of low interest rates and eventual acquisitions for engineering talent. Generative AI has upended both premises. Companies relying on per-user pricing models now face obsolescence as AI automates white-collar work, forcing a shift toward AI-native infrastructure and outcome-based pricing.

Skydio disputed its valuation drop from $2.5B to $509M, announcing an $110M raise at $4.4B post-publication. AG1 is reportedly seeking a $2B sale including debt. The Farmer’s Dog denied valuation declines since 2022.

Startups not raising capital since 2021 or 2022 face grim exits — steeply discounted acquisitions or collapse. “When we see companies not raising, it’s a red flag,” said PitchBook analyst Andrew Akers. “Under the surface, I think there are a lot of dominoes to fall.”