C2V October Notes From The Trenches
Welcome friends!
Well, we had a newsletter plan, then Anthropic dropped its public S-1 filing two days before publication and we briefly considered a pivot, but ultimately decided that C2V Research would need more time to do a proper deep dive on that one (though that deep dive itself would have made for an interesting exercise since, as it happens, our research department is mostly staffed by Claude these days).
It was a not an easy decision given how much fun finance nerd stuff there appears to be in this S-1 (current econs that appear to have crossed a huge, positive scale threshold, accounting adjustments driving 11-figure P&L swings, lease obligations and risk factors that have commentators all hot and bothered, you name it), but we trust you’ll enjoy our regularly scheduled, 2026 macro venture unpack just as much.
Don’t forget to stick around for the latest portfolio news (we have some really good stuff this month) and in the meantime, we’re dressing as late-stage managers for Halloween in case anyone wants to throw us a few hundred million to load up on a couple hyperspender AI companies, just to round out the costumes.
Starting with…
The What
Exit Markets
(Quick note: the numbers below are presented with the SpaceX IPO and its prior acquisition of xAI removed — one because it is such a unique and extreme outlier, it makes comps to other periods meaningless, and the other because it’s not even an alligator-arms-length transaction).
Even without those two elephants in the exit room, though, overall numbers are quite strong, with total 2026 exit values on pace to beat last year by 50.8%, finally passing 2020 and halfway to the 2021 high-water mark. Total number of exits is down slightly (-5.6%), but the number of VC-backed IPOs is on pace to be up 48.8% YoY.
Even more impressive are median valuations (now almost 2 years into a strong upward trend). At $796mm, the median IPO is down slightly from last year’s record high, but still the second highest number on record (with a quarter still to go), and median M&A values are 2.2x last year and 3.1x the largest pre-2025 mark.
Suffice it to say the demand is there, and the issue remains the dearth of willing sellers (more on this below).
Funding rounds
This is where we start the “yes, but” section.
The headline numbers through three quarters are incredibly strong. The number of deals funded is on pace to beat last year by 19% (and about 10% below the all-time high in 2021), while the total dollars flowing into these rounds is skyrocketing. Through just the first three quarters of this year, total deal funding is already 61% above last year and 44% above 2021’s high water mark, with a quarter still to go.
Unfortunately, this incremental funding is going almost entirely to super late-stage rounds (86% of the YoY increase has been deployed at Series E or later), while the funding share for every other stage continues to plummet to new all-time lows. In particular, the share of startup funding going to Pre-Seed and Seed rounds this year is less than half the trailing 10-year average.
Furthermore, these headline numbers actually somewhat understate just how top-heavy the market is right now. While deal counts overall are climbing (and as noted, nearing their prior peak), the number of Series E+ rounds is now in its fifth year of decline, down 27% over that period even as capital deployed at these stages is up 4.5x.
The result is a median series E+ round size of $1.49 billion (with a “B”), nearly double last year and more than 7x the previous 2021 peak.
Valuations
As you might expect based on the numbers above, late-stage valuations continue to move further into the surreal, with median 2026 Series D+ pre-money valuations (at a cool $1.7 billion) roughly 2.1x last year and 1.8x the 2021 peak. Keep in mind, these are median numbers (not skewed by a handful of giant LLM rounds, but rather an across-the-board trend).
Having previously covered entry valuations from several angles, including both success probabilities and actual results (i.e., late-stage series losing money on a shockingly large number of multi-billion-dollar IPOs), we won’t continue to bang the drum here (much).
We would just point you to a couple relevant numbers:
This year’s median Series D+ post-money valuation is 3.3x this year’s median IPO value.
That $1.7 billion pre-money median is across a pool of 169 Series D+ rounds closed so far this year (with a quarter still to go)
In the past 7 years (including the two biggest exit years in VC history), the total number of VC-backed exits that were large enough to generate even 2x that median: 117
Moving on…
VC Fundraising
Two quarters ago we did a whole piece on the increasingly problematic, extreme concentration of LP money into enormous late-stage funds run by just a small handful of firms, and it has only gotten worse since.
Overall VC fundraising is on pace to nearly double from last year, making this the third largest year ever, but unlike those prior years (even the two largest ones), this does not remotely represent the actual level of investment in the venture capital/startup ecosystem as a whole. 80%+ of this new money is essentially just financing the compute spend of a handful of AI foundation models, with a handful of VCs clipping their 2 & 20 on the way through (or as we’ve previously called them, the world’s most expensive index funds).
Even the headline numbers – 88% of new LP money going to “established managers” (Fund IV or later) – don’t do justice to the levels of concentration:
37% of all LP money committed in 2026 has gone to three managers (three!)
68% of new LP commits have gone to 3.7% of all venture funds closed in 2026 (26 funds, all $1 billion or more)
As noted above, 85% of 2026 startup investment has gone to funding rounds of $100mm or more
Similarly the relative dearth of new LP capital finding its way to emerging managers is also much more dire than the already dire headline numbers suggest. The record-low 12% of new LP commitments going emerging managers is not simply a shrinking share of a larger pool (as was the case in the two largest years for VC fundraising), the mega-fund concentration is coming directly at the expense of emerging, early-stage managers:
The absolute dollar amount of new emerging manager funding is its lowest since 2015 (when overall VC fundraising was a quarter of its 2026 size)
New LP commitments to emerging managers have now declined for five straight years, dropping 73% over that time
This is not a matter of average fund sizes shrinking either (they’re actually a little above the trailing 10-year average), the number of new emerging manager funds is down 32% from last year’s total (iteself already the lowest in a decade)
The number of emerging firms closing at least one fund in 2026 is down 70% from just four years ago
The Why
(Note: this is the pure speculation portion of the newsletter, so please take all of it with a whole handful of salt)
The why (particularly on the LP side) is a bit puzzling, honestly. Or rather, attributing this to something more reasoned than FOMO and/or logo-chasing is challenging.
Comic relief department
From the most recent Venture Monitor summary: “LPs’ preference for established, name-brand managers with proven track records largely reflects liquidity constraints that have persisted for a couple of years now, with little meaningful improvement to date.”
Why comic relief? Because these LP liquidity constraints are entirely due to 2021/22 positions that are still underwater, stuck in funds run by these very same “established, name-brand” managers.
More plausible department
It does seem that some of this is attributable to anticipation of Anthropic and (maybe?) OpenAI IPOs coming directly on the heels of SpaceX’s record-shattering public listing, all of which has been a bit of a double-edged sword.
On the one hand, SpaceX is in the process of unlocking $60B+ of liquidity (as various private investor lock-up periods expire), and Anthropic and OpenAI could add upwards of another $200B.
On the other hand, within weeks of SpaceX’s S-1 filing and the accompanying value projections, we heard directly from a few LPs that they’re putting all of their venture allocations into one or two enormous funds because “we have to be in these trillion-dollar IPOs”. Which, with no additional context, could kind of make sense, but…
A couple potential holes in this thesis:
Do one or two $1 trillion IPOs mean this scale of exits will suddenly become commonplace? Maybe. Consider us skeptical, but who knows.
More importantly, even if they do, if you’re chasing that $1T+ potential at mid-alphabet funding rounds with mid-alphabet valuations, does this actually get you anywhere from a return standpoint?
Is anyone really considering the (substantial) risk to this strategy?
With Anthropic, it looks like it may work out ideally, where investors in May’s $965 billion Series H could make 1.6 – 2.0x in less than a year.
But OpenAI’s $852 billion March round seemed like a similar homerun for a hot second… until underwhelming pricing indications led them to pull the IPO, leaving them with lots of exit uncertainty, enormous funding needs, and a ton of new scrutiny on their reported revenues, growth rates, and upside.
Even if both Anthropic and OpenAI work out and you get 2/3/4x returns on each of those investments, what about each funds’ other 8/10/15 positions (also bought at levels requiring mega-exits)?
Related notes:
At the rumored price range (and assuming full dilution in every subsequent round), Anthropic’s Series A investors stand to make 750x – 1,000x their investment. In 5.5 years (an IRR number that will break your calculator).
Even if OpenAI’s next raise is a flat round, those who came in at the first non-Microsoft round 7 years ago could sell into it at well over 100X their investment.
Early stage. Just saying.
The Fallout
There’s no sugar coating it, there is absolutely nothing positive about any of this. Notwithstanding some recent SV hyperbole, startups do not go from zero to Series E, and they never will. At some point the pipeline of potential future late-stage FOMO trades will just run out.
In fact, to some degree they already have. If your average $11B+ manager had enough options for Series D+ companies, would they be throwing $1B+ valuations at pre-seed companies with no revenue (and in some cases, not even a live product)?
Ultimately, what all of this does is to kill innovation. In addition to aiding and abetting the growing epidemic of Big VC groupthink (well-articulated in this excellent piece from Euclid Ventures), the capacity for a small number of companies to outspend everyone else by orders of magnitude can readily paper-over material product and business model flaws, while crowding out better companies with better products and better businesses.
What makes this all come to a head (and hopefully a return of sanity) is anyone’s guess, but the sooner it does, the better for the 98% of the industry who continue to adhere to the principals that got us all here in the first place.
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