Good day. Capital chasing AI gold rushed into the California Bay Area in 2025, but money has been swinging to the historical center of venture capital for a while. Over the past decade, the Bay Area’s venture-capital market share grew by 17.25 percentage points, rising to 55% last year, to the detriment of secondary markets. Places like Boston and Seattle, among others, saw decreases in their share of overall VC investment, and to attract venture capital, some of them have focused on developing specialty sectors. Austin, for instance, has bucked the tide by focusing on hardware.

So we ask, what technology is helping which smaller markets attract more venture dollars? Will the AI talent wars make it harder for startups outside the Bay Area to compete? Please email responses to vcnews@wsj.com.

Last week, we asked what worries you about the AI sector right now, and how you weigh any trepidation about the bubble against the fear of missing out on a promising deal. Here are responses, edited for length and clarity.

• Weston Moyer, co-founder and managing partner at MVP Ventures: “What worries us is how quickly parts of the AI market are being priced for perfection before execution is proven. That’s why we focus on AI infrastructure, where we’re comfortable taking technical risk, but avoid paying extreme prices for unresolved go-to-market risk, and where value compounds regardless of which model wins.”
   
• Ankur Saxena, investment director at TDK Ventures: “What worries us about the AI sector isn’t demand, but misalignment. Power availability, grid timelines and memory constraints are the real bottlenecks, while capital is rushing into GPU-heavy data centers built for today’s transformer-based LLMs. That creates bubble risk at the infrastructure layer, not the software layer. We manage bubble risk and FOMO by backing adaptable, power-efficient infrastructure designed for a post-LLM world.”
   
• Elizabeth Yin, co-founder and general partner at Hustle Fund: “My worries are much more societal. I think the wealth disparity is pretty high already and AI will only make it higher. Those who know how to get leverage by running machines all the time will do well and everyone else will get left behind/will be out of a job. I don’t worry about missing out on deals though.”

And now on to the news...

OpenAI plans fourth-quarter IPO in race to beat Anthropic to market. OpenAI is laying the groundwork for a public listing in the fourth quarter of this year, people familiar with the matter said, accelerating its plans as competition with rival Anthropic intensifies. The $500 billion startup is holding informal talks with Wall Street banks about a potential initial public offering, people familiar with the matter said, and is growing its finance team. That includes the hire of a new chief accounting officer, Ajmere Dale, and a new corporate business finance officer, Cynthia Gaylor, who will oversee investor relations. It is expected to be a blockbuster year for stock-market debuts after a recent drought, and some on Wall Street are speculating that 2026 could be the biggest year ever for IPOs.

Anthropic scored a major endorsement last summer when it won a contract worth up to $200 million from the Defense Department. Now, the AI startup’s relationship with the Pentagon is on the rocks. The company and agency are at odds over the contractual terms of how Anthropic’s technology can be used, according to people familiar with the matter. The tension could lead to the cancellation of the Pentagon contract, one of the people said.

The new era of corporate cost-cutting is hitting American workers with full force. Big companies from Amazon.com to UPS are slashing jobs, looking to shrink their head counts after years of breakneck growth. Companies generously expanded their workforces during the pandemic years of 2020 and 2021 and doled out hefty raises, worried that moving too slowly might leave them with a shortage of skilled workers. Now, some companies say their hiring sprees went too far. Their biggest concerns today are bloat and runaway expenses.

Funds

EV3 Ventures raised an oversubscribed $61.7 million second fund to lead pre-seed and seed investments in startups building crypto-enabled infrastructure.

People

Austin, Texas-based Dux Capital said Neil Pryor joined the firm as venture partner and head of the newly formed Dux Consumer Platform. He previously spent 23 years at PepsiCo.

Waabi, a Toronto-based startup using its physical AI platform to develop autonomous trucks and robotaxis, closed a $750 million Series C round. Khosla Ventures and G2 Venture Partners co-led the investment, which included additional support from Uber, NVentures, Volvo Group Venture Capital, Radical Ventures and others.

Decagon, a San Francisco-based developer of conversational customer experience AI agents, scored $250 million in Series D funding. Coatue Management and Index Ventures led the round, which included contributions from Andreessen Horowitz, Accel, Bain Capital Ventures, Definition Capital and others.

Flapping Airplanes, a frontier data-efficiency lab currently in stealth, has raised $180 million in funding from investors including GV, Sequoia Capital, Index Ventures and Menlo Ventures.

RobCo, a Germany-based autonomous industrial robotics platform, grabbed $100 million in Series C funding from investors including Lightspeed Venture Partners, Sequoia Capital and Greenfield Partners.

Rogo, a startup building an agentic end-to-end AI system for financial workflows, landed a $75 million Series C round led by Sequoia Capital.

Factify, an intelligent document startup based in Pittsburgh and Israel, was seeded with a $73 million investment led by Valley Capital Partners.

Gyde, an Austin, Texas-based AI-native brokerage platform, launched with $60 million in funding. Lightspeed Venture Partners led the round, which included participation from Optum Ventures, Crystal Venture Partners and others.

Eliyan, a Santa Clara, Calif.-based provider of connectivity products and technology for AI and high-performance computing systems, secured $50 million in funding from investors including Advanced Micro Devices, Meta, Samsung Catalyst Fund and Intel Capital.

Automata, a London-based lab automation company building integrated, AI-ready platforms for life sciences, closed a $45 million Series C round led by Dimension.

Talos, a New York-headquartered provider of institutional digital asset infrastructure, technology and data, added $45 million in Series B funding from investors including a16z crypto. This latest tranche brings the round total to $150 million and the company’s post-money valuation to about $1.5 billion.

Outtake, a New York-based digital trust platform protecting organizations from AI-driven impersonation, secured $40 million in Series B financing. Iconiq led the investment, which saw participation from CRV, S32 and others. Murali Joshi, general partner at Iconiq, will join the company’s board.

OpenArt, a San Francisco-headquartered generative AI creative platform for visual storytellers, collected $30 million in Series A funding led by Canaan Partners.

Adaptive6, a cloud cost governance startup based in New York and Israel, emerged from stealth with $44 million in funding, including $28 million in Series A financing led by U.S. Venture Partners. Additional investors in the round included New Era Capital Partners, Forgepoint Capital, Pitango and Vertex Ventures.

Prenosis, a Chicago-based precision medicine platform focusing on acute care, completed a $20 million Series A round led by PACE Healthcare Capital.

• Apple Posts Blowout iPhone Sales on Surging China Demand

• Meta Reports Record Sales, Massive Spending Hike on AI Buildout

• Microsoft Earnings Prompt Tech Stock Selloff

• York Space Stock Rises After IPO

• Call Screening Is Aggravating the Rich and Powerful

• A Yann LeCun–linked startup charts a new path to AGI (Wired)
   
• Death of an Indian tech worker (Rest of World)

This newsletter was compiled by Matthew Strozier and Zachary Cole.

Share your tips, comments and questions: vcnews@wsj.com

The team: Matthew Strozier, Yuliya Chernova, and Brian Gormley.

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