Market reset meets the AI platform shift – what this means for future venture capital vintages

Why this could be a defining venture capital vintage

Global private markets have entered a distinct phase over the past two years. Following a period of extraordinary capital availability, suppressed interest rates and overblown valuations in 2020 and 2021, venture markets have shifted into a more disciplined environment characterised by cautious capital, slower fundraising cycles and increased scrutiny.

Global venture investment declined by more than 35% between 2021 and 2023 as markets recalibrated following the pandemic-era surge (PitchBook, 2024). Valuations have compressed, growth expectations moderated, and both founders and investors have been compelled to reorient their focus towards capital efficiency. 

Market resets are uncomfortable in the short term. Yet, historically, they have proven to be the conditions that underpin the most attractive venture capital vintages.

Of course, this particular market correction is made even more extraordinary by the fact that its timing coincides with another modern-day paradigm: the advent of artificial intelligence, widely acknowledged as the most significant technological platform shift we’ve seen since the advent of cloud technology. The combination of capital discipline and foundational technological advancement has historically induced a powerful catalyst for the creation of generational companies.

From boom to discipline

The venture capital expansion of 2020 and 2021 was unprecedented in both scale and speed. Global venture investment exceeded US$600 billion in 2021, more than doubling levels recorded only a few years earlier (Crunchbase, 2022).

Several structural forces contributed to this surge. Pandemic-driven digital adoption accelerated demand for software across sectors, while historically low interest rates pushed capital further along the risk curve. At the same time, the so-called “Great Resignation” saw experienced operators leave established technology companies to launch new ventures (Microsoft, 2022).

The result was a rapid expansion in both company formation and capital deployment.
As global monetary conditions tightened through 2022 and 2023, we saw this cycle reverse. Capital became more selective, as many companies were forced to revisit growth assumptions built in a starkly disparate market environment. 

While this adjustment has been challenging for parts of the ecosystem, it has also restored a level of discipline that is fundamental to sustainable venture investing.

The AI platform shift

While venture markets are recalibrating, artificial intelligence is moving rapidly from experimental technology to core economic infrastructure.

The Stanford AI Index reports that global private investment in AI exceeded US$90 billion in 2023, reflecting sustained capital flows into the sector despite a broader contraction in the venture market (Stanford University, 2024). Adoption across industries continues to accelerate as organisations embed AI across workflows ranging from software development and customer support to logistics, healthcare and financial services.

Technological platform shifts of this scale are rare. Over the past several decades, only a handful have fundamentally reshaped the technology landscape — most notably the rise of the internet in the 1990s and the mobile computing wave following the introduction of the iPhone.

Importantly, each of these shifts expanded the set of problems that software could address and created entirely new categories of companies.

Artificial intelligence appears to be following a similar trajectory. Rather than existing as a standalone technology category, AI is increasingly embedded in the fundamental infrastructure, influencing how businesses operate.

Discerning venture-scale opportunities

Periods of technological excitement tend to produce multiple layers of innovation. Artificial intelligence is no exception. The first category – where much of the early attention of what we’ll cautiously label the AI “hype cycle” fixated upon – comprises mostly consumer-facing applications and productivity tools built on large language models. These emerge quickly, are often built on existing models and deliver useful but easily replicable functionality. While many of these products create surface value, the deeper and potentially more durable economic impact may sit further down the technology stack.

The second category comprises companies building durable advantages at the application layer: developing proprietary capabilities, data assets, or distribution frameworks that compound over time.

In practice, both play an important role in shaping a sustained and effective technology ecosystem.

While the venture-scale opportunities we seek are found in the latter category, the former accelerates the democratisation of new technologies, expanding access to tools, knowledge and technical capability across a broader base of users. Over time, this diffusion raises the baseline for technological adoption and creates the conditions for more durable, category-defining companies to emerge.

History suggests that these enabling layers frequently capture a disproportionate share of long-term value. The companies that defined the cloud computing era were not only application developers but also the infrastructure providers that powered the ecosystem.

For investors, this creates an important distinction between companies benefiting from the AI wave and companies enabling it.

Australia’s position in the ecosystem

Australia continues to play an increasingly meaningful role in the global innovation landscape.

The country benefits from a strong university system, high-quality engineering talent and a stable regulatory and economic environment. According to Startup Genome, Sydney and Melbourne now rank among the leading startup ecosystems in the Asia–Pacific region (Startup Genome, 2023).

Australia has also produced globally recognised technology companies across sectors, including fintech, enterprise software and logistics.

Importantly, the local ecosystem has historically maintained greater valuation discipline than some larger venture markets. While access to capital remains a critical consideration for founders, this relative pricing discipline can provide investors with attractive entry points into high-quality companies.

Combined with strong connectivity to global markets, these factors position Australian founders well to participate in the next wave of technology innovation.

A generational window

We are at the precipice of a key inflection point for venture capital.

Moments when a venture capital market reset converges with a foundational technological platform shift are rare and powerful catalysts for the emergence of new companies and new technology categories.

The long-term outcomes are never certain. Yet historically, it is precisely these moments – when capital becomes selective just as new technological paradigms emerge – that have defined the most consequential venture vintages.