One word to describe Q1 2026: Bubblicious.

Enterprise AI is running hot, and I always say, when average founders with average solutions are demanding and receiving premium valuations, it's time to back off. In Q1 2026, the median AI valuation for Series A companies was 38% higher than that of non-AI peers. 

I believe we are entering the fourth inning of venture AI investing. The first inning was foundational layer models such as ChatGPT and Claude, which have changed the world substantially. The second inning was GPT wrappers. We have seen the floor fall out on those and seen others become major successes, such as Jasper. Jasper is a prime example of a successful GPT wrapper that evolved into a durable business. The company started with individual marketers before shifting upmarket to 850+ enterprise clients and reaching $55–120M ARR, all while layering proprietary models on top of its original foundation. Inning number 3 of this game that we call AI investing was vertical enterprise AI companies that look and feel a lot like vertical SaaS companies of the past several decades. We have several companies in our portfolio that fall into this category, like Iris, which focuses on solving a very specific verticalized problem of drafting and answering RFPs. Heading into the 4th inning, we are heading into the agentic era, where AI is becoming smarter, and humans matter more than ever before. 

There has been a trend to replace humans within the AI native world we live in currently, but we are actually seeing the opposite become more in vogue. Enterprises (buyers) want a human in the loop for control and security, and startups (sellers) want a human in the loop to create stickiness and ensure usage of the full product they are selling, not just a piece of their total solution. This model allows non-technical users to get the most out of the AI products they are buying. 

We are seeing the old Microsoft ERP model becoming more and more accepted and integrated software and services approaching lower margins and stickier systems. Archive, a Fund 3 portfolio company, has integrated this approach, and it’s been working well. Now, they’re not just selling the tool for companies to run influencer marketing campaigns, but they are running companies' influencer marketing departments with the addition of a forward-deployed engineer within their product offering.

Currently, in our third fund, we have invested in 14 companies, 9 of which are enterprise AI companies. I feel really good about the current portfolio of enterprise AI companies we have in the fund, so our focus for the remainder of the year will be on our other industries of interest, such as Cybersecurity, FinTech, and Healthcare. I’m not saying we won’t invest in more enterprise AI companies, but at this juncture, we would like to see a greater delta emerge between the winners and the losers in the space.

When looking at the macro view of the venture world, a few things stay true:

1. Average round size continues to climb, but volume is still down overall when looking at the market. This continues to show a flight to quality; the best companies are getting invested in at higher prices due to investors fighting for allocation.
2. Liquidity continues to open up. Global exit value hit a 16-quarter high of $178B in Q4 2025, supported by renewed US IPO activity and sustained M&A activity worldwide.
3. We have some MEGA IPOs on the horizon, including SpaceX, which is going to be a pinnacle moment for liquidity in the VC market. This IPO is the single most important event in the past several decades for this market. Not only will the returns for thousands of investors be life-changing, but this event will get the liquidity flywheel moving, and we will be the beneficiary of the trickle-down effect.
4. The global economy needs the conflict in Iran to be resolved, or we will see lingering effects of price increases across the majority of economic sectors. This conflict, in my opinion, is the only real thorn in our side, and it’s holding back the economy from exploding (in a good way).

Want more insights on the broader VC market? Check out Pitchbook-NVCA’s Q1 Venture Monitor Report.

When looking at the FLF portfolio, we had several uprounds and exits in Q1 2026:

1. Intecrowd, a FLF Fund 2 portfolio company, has been acquired by UST Global, a technology transformation company focused on AI-powered digital solutions with a presence across North America, Europe, and Asia. The combination brings together Intecrowd's deep Workday implementation expertise with UST's global scale, AI capabilities, and broader enterprise transformation platform. Founder and CEO Don McDougal will continue leading the business as part of UST. MOIC = 1.3X
2. Worth AI, a FLF Fund 3 portfolio company, raised a Series A round led by Fulcrum Venture Partners and Amex Ventures. We participated alongside our full pro rata and are now holding the company at a 1.4X MOIC
3. Iris, a FLF Fund 3 portfolio company, raised a bridge to Series A, led by Cultivation Capital. We are now holding the company at a 1.62X MOIC
4. RapidFort, a FLF Fund 3 portfolio company, raised a $45M Series A led by Forge Point and Blue Cloud. We are now holding the company at a 1.44X MOIC

Overall, Q1 was a good start for us here at FLF. We continue to see great opportunities to invest in, and we are in a good position to capitalize on those investments, sitting on a freshly raised FLF Fund 3. We will continue to try and drive liquidity in the portfolio, specifically in Fund 1, where we are coming towards the end of the fund lifecycle. As always, thank you to you, our founders and investors, because without you, we would not be able to continue on our mission to invest in the best founders in the country.

Thank you,

Saxon Baum
Managing Partner
FLF

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Sources:
Q1 2026 PitchBook-NVCA Venture Monitor