AI startup valuations are overheated: First Round Capital cofounder Howard Morgan – The Economic Times

The Economic Times


Veteran American venture capitalist and B Capital chairman Howard Morgan, who’s also cofounded First Round Capital, among the most successful seed-stage firms globally, believes AI startup valuations are overheated, and warned that many firms are priced too high.

In an exclusive interview with ET, he stressed that avoiding a potential bubble requires disciplined investing and maintaining diversified portfolios.

Morgan explained that venture investing typically follows two paths: buying low and selling high, or buying high and selling higher. However, he cautioned that the latter strategy only works during a market bubble. “In a bubble, everybody thinks buy high, sell higher works forever, but that only works inside the bubble,” said the 80-year-old investor.

Drawing parallels with past technology booms, Morgan noted that the massive influx of capital into AI startups resembles earlier hype cycles. While many companies may struggle if the bubble bursts, a handful are likely to emerge significantly stronger.

In his view, OpenAI is “overvalued.”

“OpenAI is overvalued, more overvalued than some others. Anthropic, for example, is somewhat better in terms of focus and valuation because it has been more B2B oriented. To justify some of these prices, you need 10 years of earnings, and that is very far out for venture capital.”