Investors Continue to Seek Clarity and Stability

A Quarterly Wink and a Glance at Venture Capital

The frothy venture capital (“VC”) market that many had predicted for 2025 has not yet materialized. The lack of stability and clarity in the global markets has resulted in a very challenging time for investors, founders, and limited partners. Many VCs are waiting on the sidelines for some clarity on the direction of the markets. Q1 2025 saw $91.5 billion invested in almost 4,000 deals, which was comparable with Q1 2024 investment activity. However, 61% of Q1 2025 deal value was attributable to 10 transactions exceeding $500 million each. Only 12 VC-backed companies completed IPOs during Q1 2025, and whatever M&A activity existed was focused on earlier and less-established companies. In fact, more than 75% of the completed M&A deals in Q1 2025 involved companies that had not even raised a Series B round. 

Q1 Dealmaking Continues 2024 Themes 

A total of $91.5 billion of VC investments in Q1 2025 represents approximately 43% of the total dollars invested in all of 2024. Q1 performance looks strong. But dig a little deeper and you’ll realize that the five largest deals of the quarter represented almost 54% of the quarterly total. Large AI/ML deals continue to dominate VC deal activity, representing more than 33% of the deal counts and more than 71% of the deal value in Q1. Other areas receiving significant investment in Q1 included defense technology and digital infrastructure. With VCs continuing to focus on higher-quality companies, it is becoming more difficult for first-time founders to raise capital. In Q1, only $3.8 billion (or 4%) of the VC capital deployed was raised by a first-time founder. 

Pre-Money Valuations Up Across All Rounds 

Q1 saw medium pre-money valuations increase across all stages of VC investment, with the largest increases seen at the early stage and the venture growth stage. Median pre-money valuations for Q1 for the pre-seed, seed, early stage, late stage, and venture growth stage were $8.3 million, $14 million, $56 million, $73.4 million, and $299 million, respectively. Due to increases in valuations, median deal sizes by stage are also increasing. For Q1, median deal sizes for pre-seed, seed, early stage, late stage, and venture growth were $0.8 million, $3.3 million, $7.0 million, $7.8 million, and $22 million, respectively. 

Exits Still Few and Far Between 

In Q1 2025, there were 385 exits of VC-backed companies totaling $56.2 billion, which represented the highest quarterly total since Q4 2021. However, even this good news comes with some concern. A total of 39% of the exit value came from one IPO: CoreWeave. In fact, there were only 12 completed IPOs in Q1. This is a small number when you consider all the VC-backed unicorns that are still private. VC-backed unicorns currently represent more than $3 trillion in aggregate value—certainly not a trivial number. 

M&A activity in Q1 generated approximately $23 billion in value with 205 closed transactions. Most of the M&A transactions involved early-stage companies. Most of the M&A activity involved early-stage companies that had not yet even raised a Series B round, and this was reflected in the average acquisition deal size of only about $112 million. 

Lack of Distributions to LPs Continues to Impact VC Fundraising 

The fundraising environment for VC funds continues to be quite challenging. In Q1 2025, 87 VC funds raised only $10 billion. At this pace, 2025 will be the lowest year for fundraising since 2015. This poor fundraising scenario has caused VCs to slow down investment activities to conserve capital. With VCs experiencing difficulties fundraising, the amount of dry powder waiting to be invested has even started to decline. The amount of dry powder now stands at $290 billion, which is down from the recent high of $325 billion. 

Going Forward 

Q1 2025 continued many of the 2024 VC trends. Larger deals and larger exits continue to dominate the reported results. The global tariff situation has created much uncertainty throughout the U.S. financial markets. Recent tariff announcements in the U.S. and China have impacted VC deal activity and have also changed or delayed IPO plans for several companies that have already filed. The lack of exits through IPOs and M&A events continues to dominate the news in the VC space and has resulted in low fundraising activity and even the decline in the amount of dry powder available for future investments. It looks like VCs will remain very cautious in 2025 until they begin to see some clarity and stability return to the financial markets. Let’s see if we are at a tipping point or if Q1 performance will continue into Q2.