AI continues to be one of 2025’s most well-capitalized and fiercely competitive sectors. According to PitchBook, AI startups captured 58% of global venture funding in Q1, by far the largest share of any sector and a signal of intensifying capital concentration.
Massive checks are flowing into AI-native and adjacent startups, often well ahead of product maturity or revenue visibility. This is especially pronounced in application-layer companies, where experimental use cases and early traction are translating into billion-dollar valuations. As noted by Fortune, nearly two-thirds of the 370+ AI unicorns globally fall into the application layer, many of which are early-stage companies without durable revenue. This underscores the degree to which headline valuations can decouple from fundamentals in a fast-moving market.
Today’s pace has made capital a differentiator. In earlier cycles, companies had time to iterate, demonstrate customer pull, and earn market share. Now, the influx of funding (often hundreds of millions in a single round) creates “winner-take-most” outcomes at breakneck speed, leaving undercapitalized players at a significant disadvantage. It’s more important than ever to identify the right companies early and support those conviction positions over the long term.
As AI companies scale, strategies vary by category. AI-native firms like Anthropic and OpenAI rely on deep integrations with hyperscalers such as Microsoft and AWS, which provide critical compute access and enterprise distribution partnerships that remain foundational, even as dynamics and offerings evolve. Cloud-native platforms like Databricks are embedding AI to drive efficiency and operating leverage, while consumer-facing businesses are applying AI across logistics, automation, and manufacturing to boost both revenue and margins.
This environment demands more discipline, not less. Amid the capital, competition, and complexity, G Squared’s focus remains steady: back companies with real traction, structural tailwinds, and the ability to scale with both purpose and pace.
