It’s no surprise that if you bring hundreds of venture capitalists and limited partners together in 2026, most will have bought into AI—literally. So it was interesting to hear what investors gathered in Santa Monica, Calif., last week for March Capital’s annual The Montgomery Summit thought were the AI boom’s weak links. Take Matt McIlwain, a managing director at Madrona. On a panel, he said that the Seattle-based venture capital firm has seen AI-driven application businesses grow at a faster clip than other kinds of companies in the past two decades. He’s bullish on AI apps, especially ones that use many different models and fine-tune them to create a unique product—but still he asked, “Can they remain durable?”
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Welcome back! It’s Julia.
It’s no surprise that if you bring hundreds of venture capitalists and limited partners together in 2026, most will have bought into AI—literally. So it was interesting to hear what investors gathered in Santa Monica, Calif., last week for March Capital’s annual The Montgomery Summit thought were the AI boom’s weak links.
Take Matt McIlwain, a managing director at Madrona. On a panel, he said that the Seattle-based venture capital firm has seen AI-driven application businesses grow at a faster clip than other kinds of companies in the past two decades. He’s bullish on AI apps, especially ones that use many different models and fine-tune them to create a unique product—but still he asked, “Can they remain durable?”
This kind of pragmatism has buzzed in the background for much of the past three years. Investors fretted that AI software built atop AI foundation models would soon get sidelined by rival products from OpenAI, Anthropic and Google. Jasper, an AI-powered copywriting app that had been charging $80 a month, became an early poster child for such fears after OpenAI introduced ChatGPT, which could also craft letters and business proposals—for free.
Nonetheless, in the ensuing years, venture capitalists backed dozens of AI apps, which sometimes quickly raised funds at double or quadruple their prior valuation.
Some argued that certain AI apps could guard against the big model makers by customizing their AI with special data, such as case history (for legal apps) or a movie studio’s film library, which Runway does. Madrona raised nearly $800 million in new money last year, in part to back those “applied AI apps.” Since then, it has invested in AI apps such as Vercept, an AI-powered desktop assistant that Anthropic bought last month.
Sumant Mandal, co-founder and managing partner at March Capital, the growth-stage VC firm that puts on the summit, also questioned the future of AI apps as the big model makers launch their own specialized products, like Anthropic’s Claude Code and Cowork’s legal tool, which can review contracts and draft documents.
“Where does the model end and the application begin?” he said in an interview, adding that investors should now ask whether large model developers or AI apps will generate the most attractive returns. March Capital has invested in AI apps such as legal tech startup Luminance.
One reason behind the AI companies’ steep growth is that corporate customers are in a rush themselves to try new products. That doesn’t mean they’ll stick with them after a trial period. (For more on this, watch Altimeter Capital’s Jamin Ball on TITV.)
Indeed, I spoke to business leaders at the summit who were trying to learn how to integrate AI into their companies. An executive of an accounting firm attended the summit to get ideas on how AI might help his employees expedite work. Sensing he’s already behind on AI adoption, he told me, “It’s a good time to be paranoid.”
Altogether, the mood among attendees snacking on salted carry-mel ice cream in between sessions at the Fairmont in Santa Monica was buoyant. The wealth generated by early and leading entrants in AI was on full display: At the event’s opening party at the Getty Villa, Scale AI co-founder Lucy Guo spun tunes in the courtyard. “Even the DJ is a billionaire!” a venture capitalist told me.
Many early-stage founders still obviously see AI apps as a fertile ground. Anna Monaco, founder and CEO of General Catalyst–backed startup Paradigm, was at the conference to chat with venture capitalists and potential customers about her startup, which uses AI to automate manual spreadsheet research, largely for private equity firms and banks. She hopes that AI apps like hers can coexist with the model makers because of their specialization.
Attendees also expressed an eagerness for runaway valuations to come down to earth.
Michelle Gonzalez, corporate vice president and global head of M12, Microsoft’s VC fund, said she thought that the possible OpenAI and Anthropic IPOs may give private market investors more comparable metrics, which would help them better price their investments. Gonzalez hopes such price correction will help early-stage investors—some of whom have felt priced out of the market by ever-increasing AI valuations—find their way into AI startups.
But those IPOs may be months, or further, in the future. For now, venture capitalists are left with their own best estimates about what aspects of the current AI boom will last.
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