A brand new yr brings with it hope for a greater tomorrow — sort of, no less than. On the earth of enterprise capital, nothing is sort of predictable. The variety of companies within the U.S. has taken a pointy dip as risk-averse institutional buyers splash cash on solely the most important names in Silicon Valley, as reported by the Monetary Occasions. AI is the one class that appears to matter, and that doesn’t look to be altering anytime quickly. However the brand new yr has simply began, and maybe so has the impetus for change.
We spoke to some VCs to collect their predictions on the brand new yr — the nice, the unhealthy, and what would possibly find yourself being the surprising.
Their responses have been edited and shortened for readability.
What are your good and unhealthy enterprise predictions for 2025?
Nekeshia Woods, managing companion at Parkway Enterprise Capital
The great: As rich people decrease their return expectations for fastened revenue and money equivalents, they’ll look extra aggressively to non-public markets for outsized returns. This channel is anticipated to take a position over $7 trillion in non-public markets by 2033. In response to this anticipated inflow of capital, we’ve got seen massive wealth and asset managers use enterprise capital as a differentiating technique amongst their non-public market choices. These establishments have positioned enterprise to be a method the place they’ll provide entry to the most effective offers whereas capturing a portion of the $7 trillion anticipated to be invested in non-public markets by internet new flows. Fund managers will concurrently companion with these establishments to achieve entry to a brand new set of LPs that create a brand new, constant, and long-term capital stream for his or her funds.
Extra good: We anticipate the AI discipline to start out seeing consolidation, primarily by acquisition, in areas the place AI can develop into a commodity, like massive language fashions. The AI firms that can make it to be leaders of their discipline are opening new market segments and proudly owning proprietary information.
Gabby Cazeau, companion at Harlem Capital
The great: The IPO market will totally reopen, and we’ll see some big-name IPOs deliver much-needed liquidity. That’s a win for everybody. On the early-stage facet, funding pacing will choose up, possibly to not 2021 ranges, however definitely greater than 2022-2024. It seems like 2025 will likely be a banner yr for enterprise and hopefully the official begin of the following bull run.
The unhealthy: 2025 will likely be a make-or-break yr for AI startups promoting to enterprises. A whole lot of AI startups have grown rapidly however are nonetheless caught within the “experimental” part, dwelling on innovation budgets as a substitute of being a part of core software program spend. Many received’t make the leap, leaving various startups on the chopping block as churn and sluggish progress take over.
Triin Linamagi, founding companion at Sie Ventures
The great: The emergence of solo GPs and angel funds will drive elevated funding into earlier-stage firms — a much-needed evolution for the enterprise capital ecosystem.
We’ll see extra specialised and well-defined funding approaches, with industry-specific, educated buyers offering significant worth to founders. This shift isn’t solely useful for startups however can also be prone to ship higher returns for buyers. Capital allocation to various founding groups will proceed to develop, significantly in sectors like sustainability and healthcare, the place various views can drive innovation and impression.
The unhealthy: Significant M&A or IPO exercise is unlikely till late 2025 as market situations stay difficult. Restricted companions will stay hesitant to deploy capital, ready for improved distribution to paid-in capital metrics earlier than committing to new funds.
Michael Basch, founder and normal companion at Atento Capital
The great: Lengthy-awaited elevated liquidity for LPs with a gap of the IPO and M&A markets. Extra funds and firms taking secondaries as properly. A reset of expectations of the zombie firms which might be worthwhile not going to have the outcomes the VCs on the cap desk underwrote, promoting at a extra grounded worth to non-public fairness. Consolidation and roll-ups in oversaturated areas (e.g., GLP-1s).
The unhealthy: Continued falling unicorns which have important reset in valuations as a consequence of market resizing and progress expectations resetting.
Austin Clements, managing companion at Slauson & Co.
The great: IPO markets will reopen following the success of Service Titan, as will M&A exercise for personal firms. Lastly realizing these beneficial properties will enhance liquidity for the LPs behind many enterprise capital companies. It will result in LPs committing to extra new funds — extra enterprise funds than in years previous.
The unhealthy: [LPs] could also be extra reluctant to decide to new fund managers after seeing a number of undisciplined habits within the final cycle. The unlucky facet impact is that a number of the most revolutionary methods could have a number of hassle getting funded.
What are some traits that you simply suppose will stay? Which of them will go?
Woods
What is going to keep: Dealmaking will stay favorable to buyers with dry powder. Traders will proceed to maneuver away from taking a look at merchandise utilizing [the] “variety of customers” as a key consideration and transfer towards booked revenues, consumer pipeline, and prices as key concerns previous to investing. The tempo of investing will even preserve this investor-friendly atmosphere. We don’t anticipate enterprise companies to return to the frenzied tempo of investing skilled for the previous couple of years however as a substitute proceed with a balanced strategy.
What is going to go: The outlook for IPO exercise is reasonably optimistic. Founder-renewed confidence within the public markets and comps coupled with dwindling money runways and people high-valued firms which have survived the current fundraising constraints, have right-sized their valuations to align extra intently with the market. We consider that the buyer can also be prime for investing in small-cap shares, given the mega-cap know-how shares which have moved U.S. indexes into all-time highs and returned large shareholder worth. Whereas there are nonetheless various firms whose valuations are usually not but monitoring to the market there are some, primarily within the tech area, which might be prepared for the general public market.
Cazeau
What is going to keep: Small groups scaling income. We’re seeing groups of only one to a few individuals hitting $2 million+ ARR utilizing AI instruments — doing extra with much less and doing it higher than ever. This sort of progress was extraordinary earlier than 2024 and highlights how a lot startups are automating internally with new software program instruments. The large query now could be how these groups will scale and construct sturdy organizations, however it’s spectacular to see such progress with such a lean setup.
We’ll additionally see a resurgence in funding round reskilling — platforms addressing expertise shortages in expert trades, manufacturing, hospitality, healthcare, and different areas that software program can’t automate away.
Linamagi
What is going to keep: AI is right here to remain. The widespread deployment of AI in 2024 marked a big shift, and I consider this momentum will solely develop. Whereas it affords immense alternatives — equivalent to enhancing decision-making, enhancing deal sourcing, and streamlining operations — it additionally presents challenges. As an example, human instinct and expertise stay very important, significantly when evaluating founding groups and their dynamics. This evolution would require LPs to suppose extra critically about how they choose managers and assemble their portfolios.
What is going to go: The spray-and-pray funding strategy. I anticipate we’ll see fewer offers however with higher diligence and significant value-add from buyers. This development, already evident in 2024, indicators the tip of the growth-at-all-costs mentality. As an alternative, buyers will prioritize paths to profitability and sustainable enterprise fashions, which can proceed to be the hallmark of engaging alternatives.
Basch
What is going to keep: [The] perceived brief listing of winners within the AI area will proceed to command important investor consideration at premium valuations. [There will be a] continued development of VC-backed firms shuttering as capital markets [become] extra selective by way of funding [and the] continued development [of] VCs, particularly seed stage, [being] unable to lift new funds as a consequence of tough performing 2020 or 2021 vintages.
Clements
What is going to go: The final cycle was a deep shift to extra buyers backing enterprise SaaS firms and fewer backing client purposes. I feel this can begin to reverse as AI creates extra purposes for customers that simply weren’t doable just a few years in the past. Shopper tech will make a welcome comeback in 2025.
What’s one thing surprising you suppose may occur in 2025 on this planet of enterprise and startups?
Cazeau
We may see mergers and even closures of some big-name unicorns, a lot of which have been {industry} darlings for years. These firms have simply sufficient money to make it to 2025, however not sufficient progress to go any additional. We’re already seeing some consolidation, and this can seemingly speed up into 2025.
Linamagi
A big climate-related catastrophe, geopolitical battle, or financial shock has the potential to basically reshape the startup and VC panorama.
Basch
A surge in enterprise {dollars} taking a look at onerous know-how, as software program turns into commoditized as a consequence of generative AI. Laborious tech as outlined by bio, tech, {hardware}, different types of deep tech taking heart stage. [There will also be] a big enhance in firms elevating solely a seed spherical and having a sub-$100 million exit in sub-three years of existence — revealing a brand new math that would doubtlessly work for founders and the VCs as a consequence of firms with distribution rapidly buying high merchandise that can complement their current providing.
Clements
One thing surprising is that OpenAI may convert to a for-profit entity only for Microsoft to have the ability to purchase it within the largest acquisition ever.
