Pete Martin recalls securing a $5 million seed round at a $25 million post-money valuation for his AI-driven cybersecurity company, Realm, back in 2024, which seems like ages ago. At that time, such a valuation felt steep for the amount raised. However, now it’s common to see $10 million seed rounds at valuations between $40 million and $45 million, particularly for AI companies.
This kind of scenario is primarily occurring with AI companies, as investor interest elsewhere is waning. During the latest Y Combinator Demo Day in March, Ashley Smith, a general partner at early-stage fund Vermilion, noted conversations focused on the elevated pricing of companies. Many startups had already secured six- or seven-figure customer contracts, including one that was just eight weeks old, prompting asks of $5 million at a $40 million post-money valuation.
This trend surpasses the usual “YC tax,” which investors typically pay because a startup went through Y Combinator. Despite early revenue figures, Smith observed that rounds are priced “years ahead of traction.”
Major venture firms, loaded with capital, are entering rounds sooner, boosting prices and valuations to potentially benefit from eventual exits or IPOs. Smaller VC firms are also aggressively pursuing AI companies. Smith emphasizes that while focusing on AI infrastructure, she can find herself priced out of rounds when larger firms join. This dynamic is part of the reason why seed deal counts have dropped but valuations have increased, according to both founders, VCs, and Carta data.
Shanea Leven, founder of enterprise AI application platform Empromptu, partly attributes this to Cursor’s early 2025 achievement of reaching $100 million in revenue in just 12 months. Such companies set high standards for rapid traction, with others like Lovable, Bolt, OpenEvidence, and ElevenLabs showcasing quick growth, though these remain outliers.
“Investors now expect that,” Leven stated. “The pressure has never been higher. The aim isn’t merely to become a billion-dollar company, but a $50 billion one.”
Faster traction, bigger valuations
VCs defend rising seed valuations with evidence of traction from the outset. Marlon Nichols, managing general partner at MaC Ventures, sees initial revenue as a driver of seed pricing. In 2019, his average investment was $2.5 million; today, it’s $5 million.
“Top seed-stage companies no longer resemble their traditional counterparts,” he explains. AI advancements allow founders to swiftly develop minimal viable products and acquire early customers, even among eager large enterprises.
Nichols’ two latest seed investments already generated over $2 million in revenue, with “paid pilots from major enterprises” and “a clear line of sight to full commercial agreements.” He invested $3 million to $4 million and valued the startups at $25 million and $30 million post-money, which is considerably higher than in the past.
Founders’ backgrounds also influenced his term-sheet decisions. “Their relevant experience” and “execution track record” significantly reduced early-stage risk.
Investors pay significant premiums for proven AI talent, especially for second-time founders or those with the right credentials from employers like OpenAI, boosting overall valuations.
“There’s a current demand for talented researchers,” Amber Atherton, a partner at the early-stage consumer fund Patron, expressed. “I’m not sure it’s inherently good or bad, but it’s the present market state.”
This demand is evident in extreme seed valuations, such as ex-OpenAI Mira Murati’s $2 billion seed round for Thinking Machine Labs at a $12 billion valuation.
Leven, a second-time founder, notes her current startup’s valuation is double her previous one at a similar stage. Her new company benefits from being AI-focused and exhibiting faster growth than before.
“I’ve secured multiple six-figure contracts and am closing a seven-figure one,” Leven shared. “Those are necessary to raise funds. A friend in a similar situation, but not AI, took two years to raise half of what I did in three weeks.”
Pre-seed is the new seed
Seed VCs like Vermilion’s Smith are adapting to increased seed valuations by participating in more pre-seed deals. These early-stage startups resemble what seed-stage companies were years ago: very early and pre-revenue.
Jonathan Lehr, a general partner at Work-Bench