A brand new 12 months brings with it hope for a greater tomorrow — type of, a minimum of. 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 Instances. AI is the one class that appears to matter, and that doesn’t look to be altering anytime quickly. However the brand new 12 months has simply began, and maybe so has the impetus for change.
We spoke to some VCs to assemble their predictions on the brand new 12 months — the great, the dangerous, and what may find yourself being the surprising.
Their responses have been edited and shortened for readability.
What are your good and dangerous enterprise predictions for 2025?
Nekeshia Woods, managing companion at Parkway Enterprise Capital
The nice: As rich people decrease their return expectations for fastened earnings and money equivalents, they’ll look extra aggressively to non-public markets for outsized returns. This channel is predicted 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 technique the place they’ll supply entry to the most effective offers whereas capturing a portion of the $7 trillion anticipated to be invested in non-public markets by way of web new flows. Fund managers will concurrently companion with these establishments to realize 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 begin seeing consolidation, primarily by way of acquisition, in areas the place AI can develop into a commodity, like massive language fashions. The AI corporations that may 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 nice: The IPO market will absolutely reopen, and we’ll see some big-name IPOs carry much-needed liquidity. That’s a win for everybody. On the early-stage aspect, funding pacing will choose up, perhaps to not 2021 ranges, however definitely greater than 2022-2024. It looks like 2025 will probably be a banner 12 months for enterprise and hopefully the official begin of the subsequent bull run.
The dangerous: 2025 will probably be a make-or-break 12 months for AI startups promoting to enterprises. Plenty of AI startups have grown shortly however are nonetheless caught within the “experimental” section, residing on innovation budgets as a substitute of being a part of core software program spend. Many gained’t make the leap, leaving quite a few startups on the chopping block as churn and sluggish progress take over.
Triin Linamagi, founding companion at Sie Ventures
The nice: The emergence of solo GPs and angel funds will drive elevated funding into earlier-stage corporations — 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 will not be solely useful for startups however can also be more likely to ship higher returns for buyers. Capital allocation to numerous founding groups will proceed to develop, notably in sectors like sustainability and healthcare, the place numerous views can drive innovation and impression.
The dangerous: 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 nice: Lengthy-awaited elevated liquidity for LPs with a gap of the IPO and M&A markets. Extra funds and corporations taking secondaries as properly. A reset of expectations of the zombie corporations 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 dangerous: Continued falling unicorns which have vital reset in valuations as a result of market resizing and progress expectations resetting.
Austin Clements, managing companion at Slauson & Co.
The nice: IPO markets will reopen following the success of Service Titan, as will M&A exercise for personal corporations. Lastly realizing these good points 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 dangerous: [LPs] could also be extra reluctant to decide to new fund managers after seeing a whole lot of undisciplined habits within the final cycle. The unlucky aspect impact is that among the most revolutionary methods can have a whole lot of bother getting funded.
What are some tendencies that you simply assume will stay? Which of them will go?
Woods
What’s going to keep: Dealmaking will stay favorable to buyers with dry powder. Buyers will proceed to maneuver away from merchandise utilizing [the] “variety of customers” as a key consideration and transfer towards booked revenues, consumer pipeline, and prices as key issues previous to investing. The tempo of investing will even keep this investor-friendly surroundings. 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 method.
What’s going to go: The outlook for IPO exercise is reasonably constructive. Founder-renewed confidence within the public markets and comps coupled with dwindling money runways and people high-valued corporations which have survived the latest fundraising constraints, have right-sized their valuations to align extra intently with the market. We imagine that the patron can also be prime for investing in small-cap shares, given the mega-cap expertise shares which have moved U.S. indexes into all-time highs and returned super shareholder worth. Whereas there are nonetheless quite a few corporations whose valuations are usually not but monitoring to the market there are some, primarily within the tech house, which might be prepared for the general public market.
Cazeau
What’s going to keep: Small groups scaling income. We’re seeing groups of only one to 3 individuals hitting $2 million+ ARR utilizing AI instruments — doing extra with much less and doing it higher than ever. This sort of progress was unparalleled earlier than 2024 and highlights how a lot startups are automating internally with new software program instruments. The massive query now could be how these groups will scale and construct robust 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’s going to keep: AI is right here to remain. The widespread deployment of AI in 2024 marked a big shift, and I imagine this momentum will solely develop. Whereas it gives immense alternatives — equivalent to enhancing decision-making, bettering deal sourcing, and streamlining operations — it additionally presents challenges. As an illustration, human instinct and expertise stay important, notably when evaluating founding groups and their dynamics. This evolution would require LPs to assume extra critically about how they choose managers and assemble their portfolios.
What’s going to go: The spray-and-pray funding method. I anticipate we’ll see fewer offers however with higher diligence and significant value-add from buyers. This development, already evident in 2024, alerts the top of the growth-at-all-costs mentality. As an alternative, buyers will prioritize paths to profitability and sustainable enterprise fashions, which is able to proceed to be the hallmark of engaging alternatives.
Basch
What’s going to keep: [The] perceived quick checklist of winners within the AI house will proceed to command vital investor consideration at premium valuations. [There will be a] continued development of VC-backed corporations 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 result of tough performing 2020 or 2021 vintages.
Clements
What’s going to go: The final cycle was a deep shift to extra buyers backing enterprise SaaS corporations and fewer backing shopper functions. I believe this may begin to reverse as AI creates extra functions for customers that simply weren’t doable a couple of years in the past. Client tech will make a welcome comeback in 2025.
What’s one thing surprising you assume may occur in 2025 on the 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 corporations 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 may seemingly speed up into 2025.
Linamagi
A major climate-related catastrophe, geopolitical battle, or financial shock has the potential to essentially reshape the startup and VC panorama.
Basch
A surge in enterprise {dollars} arduous expertise, as software program turns into commoditized as a result of generative AI. Exhausting tech as outlined by bio, tech, {hardware}, different types of deep tech taking heart stage. [There will also be] a big enhance in corporations 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 probably work for founders and the VCs as a result of corporations with distribution shortly buying high merchandise that may 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.