_{By Elizabeth Stram, Nimita Nayudu, and Soledad Perez Leon}

Overview

In this issue of The Equity Effect, we look at what the Federal Reserve’s return to rate hikes could mean for venture capital, and why the impact this time may look very different from the last tightening cycle. On September 16, the Fed raised its benchmark rate by 25 basis points to a target range of 3.75-4.00%, making it the first increase since 2023. That move followed three consecutive cuts in late 2025, which had brought rates down to 3.50-3.75%. Markets are currently pricing in at least one more 25 basis point hike before the end of 2026 (Advisor Perspectives News), a sign that this is the start of a cycle, not a one-off move. 

For venture capital specifically, interest rates set the price of patience. When risk-free yields rise, the opportunity cost of investing in long-duration, illiquid assets increases. Higher rates can pressure startup valuations, make fundraising more selective, and shift investor attention towards businesses with clearer paths to cash flow and profitability. The last time rates rose this sharply, the venture market went through a multi-year reset, with U.S. deal activity and deal value declining in both 2022 and 2023. This time, however, the market has a powerful counterweight: AI. More than 60% of venture funding on Carta's platform went to AI companies in Q1 2026, while PitchBook data put AI's share of U.S. venture dollars at 87.5% for the first half of the year. This edition asks whether AI's gravitational pull is strong enough to insulate the broader market. 

What’s Inside:

• 🌍 The Fed’s Return to Rate Hikes: What higher rates could mean for venture capital and why this cycle may look different from the last.

• 🤖 AI Is Carrying the Market: How massive AI funding rounds are driving venture numbers while fundraising remains difficult for startups outside the AI boom.

• ⚡ Spotlight: Ramp: How the fintech company built a $44 billion valuation by helping businesses control spending and operate more efficiently.

AI Is Changing the Rate-Hike Story

Higher rates put pressure on venture in a few ways. As the risk-free rate rises, future cash flows become less valuable, and LPs have to think harder about locking up their money for ten years when safer investments are offering better returns. That is essentially what occurred in 2022-23, valuations and deal volume dropped drastically as investors held higher standards regarding capital efficiency and paths to profitability.

2025 has a twist though, AI has swallowed the market. Startup funding hit $510B in H1 2026, but OpenAI and Anthropic alone took $217B of it (43%). Over 70% of Q2 venture funding went to AI (Crunchbase News), and Carta saw the same pattern, with 60%+ of capital raised on its platform going toward AI-focused startups.

So "record funding" is misleading. It's not that venture broadly is back to 2021 levels, it's that a handful of giant AI rounds are currently carrying the market. Outside of that cohort, raising capital is still extremely challenging, especially for consumer products, fintech, and traditional enterprise software startups that aren't AI-native. Sectors slower to adopt AI in the first place, like construction, real estate, and insurance, are seeing the thinnest investor interest, since these industries remain heavily manual with limited digitization to begin with (TMC News).

Investors betting on frontier AI are underwriting trillion-dollar theses, so they are more willing to eat the risk rate. That doesn’t make them immune, as big valuations still answer to discount rates eventually, but it buys more patience than a normal growth story. If you’re not in the AI narrative, the opposite is true, and very few investors want to pay today for cash flow that shows up in year seven, with uncertainty on technological developments. 

IPOs add another layer of pressure. The US IPO volume was up 27% in 2025 and proceeds up 52%. However, higher rates threaten this by pressuring valuations and making investors more selective about which companies they’re willing to back.

The takeaway?

The result is an increasingly concentrated venture market. AI and other deep tech sectors, including space and defense tech, continue to attract significant amounts of capital, while companies outside these areas face a higher bar for fundraising. Higher rates are unlikely to stop venture investment, but they can make investors more selective about where they allocate capital. Further rate increases would likely reinforce that trend, placing greater emphasis on strong fundamentals, capital efficiency, and clear paths to growth.

As venture capital becomes more selective, startups that help businesses control costs and operate more efficiently may become more important. Ramp is a fintech company that helps companies manage corporate spending to improve efficiency and operations within companies. The platform helps companies better understand where their money is going and how to reduce spending.

In 2019, Ramp was founded in New York by Eric Glyman, Karim Atiyeh, and Gene Lee who aimed to help businesses spend less through automation. They created a corporate card and spend-management platform that was easy to use and gave businesses more control over their spending. Since they publicly launched in February 2020, Ramp has helped more than 1,000 businesses reduce unnecessary spending and improve their financial operations. By improving operations, it has also earned a rating as the top spend management vendor on G2. (Ramp)

Ramp’s funding grew quickly after its launch. In 2021, the company raised $115 million in Series B funding at a $1.6 billion valuation, with Stripe and D1 Capital Partners co-leading the round, along with other investors. Ramp also got $150 million in debt financing from Goldman Sachs as transaction volume increased by about 400% over the past six months.

By June 2026, Ramp raised $782 million in Series F funding, leading to a total funding of $3.63 billion and valuing the company at about $44 billion. As of September 2026, Ramp is reportedly in talks to raise another $1 billion at an estimated $60 billion valuation, while they continue to improve their spend-management platform and portfolio through investments. (PitchBook)

Podcast of the Week 🎙️

The episode explores the current AI and venture market, covering soaring AI valuations, massive funding rounds, the potential for an AI bubble, and how investors are evaluating whether these valuations are justified.

Still interested in the latest developments in AI and venture capital? Listen to a 20VC episode hosted by Harry Stebbings, featuring Jason Lemkin and Rory O’Driscoll, two leading SaaS and venture investors, discussing the latest trends. They explore AI valuations, the rise of AI agents, whether large venture rounds are justified, and how investors and LPs should approach the current market.

That’s a wrap for this week’s edition of The Equity Effect. As higher rates reshape the venture landscape, capital is becoming more concentrated around AI, deep tech, and other high-conviction sectors, raising the bar for founders across the market.

If this edition sparked new ideas, share it with a fellow founder or investor. And if there’s a global trend, fund, or AI deal you think we should cover, let us know; we’re always listening.

See you next time,
The Equity Effect
📩 Reach us at: [email protected]