Midyear 2025 reveals a bifurcated venture market defined by concentrated capital, stalled liquidity, and selective exits. AI-backed leaders advance, while most startups face funding constraints and delayed outcomes.
Despite a few standout IPOs and ongoing strength in AI-driven dealmaking, the overall venture market remains constrained by weak late-stage funding, prolonged timelines, and cautious deployment. Fundraising has yet to regain momentum, and secondaries have become the most reliable path to liquidity. While the first half of the year confirms a stabilizing floor, there is little evidence of a full-scale rebound. For investors, this environment demands selectivity, patience, and alignment with managers who can navigate a recalibrated venture cycle.
Valuations Rebound, But Late-Stage Scarcity Persists
Valuation growth has modestly improved in 2025, particularly at the early and mid-stages, though these gains are largely confined to AI-driven companies. Series B valuations are rising at an annualized pace of 36%, while AI-heavy Series A deals are approaching growth rates not seen since 2021, as per PitchBook. In contrast, non-AI companies are progressing more slowly. Meanwhile, Series C and Series D+ rounds remain suppressed due to the continued absence of crossover capital.
This divide reinforces a structural capital imbalance in the market. Late-stage and venture-growth companies are still raising far less than historical norms. Over 18,000 US-based VC-backed companies are awaiting exits, with at least 1,000 having raised follow-on rounds since 2021, as per PitchBook. While early-stage startups in AI draw concentrated interest, the broader venture market remains under strain. Without improvement in follow-on funding and exit activity, a full cycle reset remains distant.
M&A Becomes the Default Exit Path
With IPOs still mostly out of reach, M&A has become the default strategy for liquidity. Through May 2025, 372 US VC-backed acquisitions were completed, putting the year on track to exceed 2024’s total, as per PitchBook. These deals represent nearly 74% of all venture-backed exits, the highest share since 2017. The rise in M&A is directly tied to pressure on GPs to return capital despite the IPO window remaining narrow.
Moreover, startups themselves are now playing a central role in M&A. VC-backed companies accounted for more than 36% of all such deals in 2025, a new record. Many better-capitalized startups are acquiring earlier-stage firms to expand their product capabilities, enter new markets, or secure talent. This trend is especially prominent among startups seeking strategic consolidation opportunities in sectors where valuations have adjusted more quickly.
IPO Activity Is Pacing Toward the Base Case
A total of six unicorns have gone public so far in 2025, including CoreWeave, Chime, Circle, Voyager, Hinge Health, and MNTN. This keeps the market on pace to meet PitchBook’s full-year base case of 12 unicorn IPOs. However, most of these listings occurred at lower valuations than their previous private rounds. For instance, Chime entered the public markets with a sharp discount to its $25 billion private high. Among them, CoreWeave stands out for its aftermarket performance; its stock has surged over 300% since its March listing.
Despite improved volumes compared to 2024, investor sentiment around IPOs remains cautious. Market volatility and potential regulatory uncertainty continue to delay several high-profile unicorn listings. For most companies, an IPO remains an aspiration rather than a near-term liquidity solution. While the base case remains intact, upside surprises will depend heavily on macro conditions in the second half.
Secondaries Gain Traction Amid Exit Gridlock
Secondaries have emerged as a vital stopgap in an otherwise illiquid venture environment. PitchBook estimates the size of the US VC direct secondary market now ranges between $48.1 billion and $71.5 billion, with a midpoint of $60 billion. For the first time in three years, both average and median trades occurred at a premium in 1Q25, 6% and 3%, respectively.
Still, this strength remains highly concentrated. Just 20 companies accounted for over 80% of total trading volume in Q1, with familiar names like SpaceX, Stripe, and Anthropic leading the charge. Outside this narrow group, steep discounts of 30 to 60% remain common, and many deals fail to clear. That said, with $9.8 billion in dry powder earmarked for VC secondaries and growing interest from generalist funds, this route is becoming a more mainstream path to liquidity for select portfolios.
Fundraising Slows as Timelines Stretch Further
US VC fundraising totaled $23.3 billion through May, well below PitchBook’s $90 billion base-case forecast for the full year. While the number will likely increase with delayed reporting, especially from smaller funds, overall fundraising timelines have clearly extended. The median time between funds is now 2.9 years, the longest recorded in over a decade.
Figure 1: US VC Fundraising Activity Estimates (in Billions)
Source: PitchBook, data as of May 30, 2025
Larger managers continue to dominate the fundraising landscape, though even they are often raising smaller funds than before. For emerging managers, the hurdles remain steep as LPs prioritize scale, track record, and brand stability. Some optimism is warranted: a slight uptick in IPO activity and more frequent distributions will likely help rebuild LP confidence. But any meaningful rebound is more likely in 2026 than in the second half of this year.
Conclusion: A Market Repricing in Real Time
The first half of 2025 has not delivered a broad-based rebound, but it has clarified where resilience lies. Capital is flowing to AI-focused leaders, M&A is driving liquidity, and secondaries have taken center stage. The rest of the market remains in a holding pattern. For investors, this is a moment to focus on differentiated managers, stress-tested strategies, and liquidity-aware allocations as venture capital continues to reset expectations and capital flows for the next cycle.
About SG Analytics
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