Venture Capital 2025

Global Overview 2025

After the record year of 2021, the global venture capital (VC) industry and the ecosystem encompassing growth companies have been subjected to profound transformations, marked by shifts in key metrics such as elevated discount rates impacting company valuations, a decline in successful exits, and an uptick in investor-friendly deal terms coupled with a surge in bridge financing arrangements. In 2024, most of these challenges persisted as holdovers, with significant elections in a number of major jurisdictions and geopolitical tensions keeping uncertainty at elevated levels throughout much of the year. VC investors continued to be selective with their investments, focusing primarily on more mature ventures and companies with clear paths to profitability. Overall, however, the global VC industry saw a modest year-on-year (YoY) rebound in 2024.

The VC industry and its portfolio companies have evolved to become a shaping force in and for the global economy. Total VC investment volume in 2024 amounted to USD368.3 billion on a worldwide basis, marking a moderate gain from the previous figure of USD345.7 billion (in 2023) and a slight recovery from 2023’s five-year low. A total of 35,684 VC-related transactions affecting growth companies globally ‒ including financing rounds, M&A deals, and IPOs ‒ amounted to a further 5.6% decline from the 37,809 transactions recorded in 2023.

Early stage financing continues to dominate in terms of absolute transaction figures, accounting for 69% of all deals. On the other end of the life cycle, total exit value came down even further to USD318.5 billion compared to USD335.1 billion of the preceding year, perpetuating an environment where liquidity events are rare.

Median deal sizes across Series B, C, and D+ rounds rose substantially in both the Americas and Europe compared to 2023, with D+ financings rising the most from USD60 million to USD100 million in the Americas and from USD59.4 million to USD80 million in Europe. Unicorn VC deal flow likewise appreciated significantly to USD119.8 billion in 2024, up from USD84.5 billion in 2023 ‒ with a total of 1,249 active start-up companies now valued at more than USD1 billion globally.

In terms of geographical distribution, the USD204.3 billion deployed in North America again led the way, followed by Asia (USD64.7 billion) and Europe (USD63.8 billion) which saw opposite trendlines in terms of YoY developments (deceleration in Asia; pick up of activity in Europe). In terms of micro-geographies, the California Bay Area takes the US’s lead, with USD52.1 billion invested in VC-backed companies in 2024. The most prominent and largest California Bay Area deals all went to ventures engaged in AI (Databricks, OpenAI, xAI, Waymo and Anthropic). In Europe, out of the continent’s total of USD63.8 billion invested, the UK (USD19.4 billion), France (USD8.8 billion) and Germany (USD8.5 billion) took the top spots. Among the most sizeable European transactions were Wayve (USD1 billion), a venture engaged in the development of a self-learning system for autonomous driving, and British IT infrastructure provider GreenScale (USD1.3 billion).

The most substantial funding round in Asia was secured in Q4 2024 by the Chinese electric vehicle company AVATR, raising USD1.5 billion in a Series C round. Chinese companies also dominated the next largest funding rounds in Asia, with clean energy provider CNNP Rich Energy and electric vehicle joint venture IM Motors at the forefront, each securing USD1.1 billion. Indian e-commerce company Flipkart completes the Asian top fundings with USD1 billion.

Key trends

AI gaining global momentum

In terms of industries, artificial intelligence (AI) globally attracted the most sizeable share of VC investment volume: AI start-ups raised over USD100 billion, accounting for around 29% of all venture funding. The largest deals of 2024 all evolved around renowned AI model and infrastructure players. In the lead, Databricks raised USD10 billion in a Series J round, followed by CoreWeave (USD8.6 billion), OpenAI (USD6.6 billion) and xAI (USD6 billion in two rounds).

Out of the 16 investment rounds exceeding USD1 billion in 2024, nine of those were investments into AI companies, representing 80% of such rounds in terms of value.

Rebound in valuation growth

As the interest rate environment softened further, valuation levels for start-ups cautiously set out on a path towards recovery in 2024 and are expected to rise further in 2025.

Amid challenging geopolitics, macroeconomic uncertainties, and idiosyncratic regional headwinds, the valuations of growth companies have declined since 2021. This trend is reflected both in financing round valuations and the exit value for liquidity events. To illustrate the point, the number of valuation step-ups (increase in a company’s pre-money valuation between two consecutive financing rounds) fell to a ten-year low globally in 2023. That said, in the current cycle of the industry downturn, many assess that valuations then had bottomed out.

The global exit value for liquidity events of growth companies (such as M&A trade sales or IPOs) amounted to USD318.5 billion in 2024, a loss compared to the total volume of USD335.1 billion in 2023 and still a long shot from the USD1.5 trillion deployed in 2021. Increased valuations could be observed in both the US (USD149.2 billion in 2024 vs USD120 billion in 2023) and Europe (USD68.1 billion in 2024 vs USD46 billion in 2023), while levels in Asia hit a low point (USD93.2 billion in 2024 vs USD155.8 billion in 2023).

In 2024, around 30% of all financing rounds in the US market saw a flat or reduced pre-money valuation relative to the start-up’s last round. In Europe, by contrast, a mild decrease of valuation haircuts (19% in 2023 vs 18.1% in 2024) generally could be regarded as an encouraging sign of a recovery in its early innings which, despite its fragility, may accelerate. The median exit value in Europe in 2024 ended 35.1% higher, driven by increased investor appetite for buyout transactions.

Fundraising headwinds

In 2024, fundraising challenges were still evident across the global marketplace. Globally, USD169.7 billion was raised, less than 80% of the USD213.8 billion provided by limited partners (LPs) in the preceding year. In terms of geographical distribution, USD76.1 billion in the US led the way (USD97.5 billion in 2023), followed by USD66 billion provided to Asian VC funds (USD86.7 billion in 2023) and with Europe continuously lagging behind (USD22.5 billion in 2024, virtually flat from 2023 levels).

Besides the reduction in distributions from vintage funds, the further decrease can be attributed to several other factors, including LP withdrawals prompted by a perceived shortage of liquidity events, a reallocation of assets to less volatile classes, attractive public market conditions and a resurgence of crypto, as well as a general hesitation among VCs to inject additional capital into companies facing declining valuation levels.

Fundraising opportunities were increasingly concentrated among sizeable funds with prominent reputations and typically exceeding USD1 billion in targeted fund size, underscoring pre-existing market inclinations towards a concentration of capital allocation. While the total volume of capital raised in the US in 2024 exceeded pre-pandemic levels, fund counts in the US were at decade lows, at merely 31.3% of the number of funds present in 2022 and progressively concentrated among a handful of established firms. Against the backdrop of market fundraising highs in 2021 and 2022, however, total available “dry powder” in the VC industry reached new global record levels standing at USD307.8 billion of deployable capital in 2024.

Shifting the focus towards the Asia-Pacific region, China still finds itself navigating through macroeconomic headwinds against a backdrop of economic challenges. Notably, VC transactions involving Chinese start-ups witnessed a further decline, plummeting from USD63.7 billion in 2023 to USD38 billion in 2024. Sequoia Capital, which has invested in China since 2005, recently initiated the separation of its Chinese operation.

Amid China’s economic downturn, international investors seeking opportunities in Asia have directed their attention to other countries. With USD11 billion deployed in 2024, India contributed a significant 27% of the region’s venture funding representing a 40% growth trajectory YoY. In Japan, overall VC deal value in 2024 exceeded the total for 2023, primarily driven by significant funding rounds. Moreover, the market more broadly seemed to evolve as US-based Andreessen Horowitz announced plans to open an office in Japan.

Paradigm shift: growth vs profitability

The sustainability of a start-up’s business model, its margins, cash flow conversion, adaptable and recurring revenues as well as a clear-cut pathway to profitability have become a (re-)discovered focus area for venture capitalists and the broader community. The intensified pressure recently manifested itself in cost-cutting measures, a significant wave of tech lay-offs and declarations that the “war for talent” is over. At the same time, premiums on growth (as opposed to efficiency) continue to be particularly pronounced in sectors such as next generation software, biotech and AI – indicating a bifurcated market when it comes to terms growth companies can demand from investors.

Fewer exits, lackluster distributions

Growth companies continue to face significant challenges with their exit strategies, placing substantial strain on sales processes for businesses. Globally, 2024 saw a total of 8,397 M&A exits (compared to 8,529 in 2023) and 355 IPOs (compared to 444 in 2023). The European market continued to suffer, with 3,472 M&A exits in 2024 (substantially flat from 2023 levels) and 42 IPOs (down from 52 in 2023), while the US likewise felt the impact with 3,055 M&A exits in 2024 vs 3,167 in 2023 and 71 IPOs (up from 65 in 2023). On average, from the time of first funding to IPO, it took VC backed companies that went public in 2024 two years longer than in 2022 – a median of 7.5 years.

In light of the quadrupling of active venture/growth investors during the past decade as well as the massive decline in VC distributions in 2022 and 2023, which has not been seen at this level since the global financial crisis, distributions remained significantly below the ten-year average in 2024 but indicate a slight increase for 2025.

Alternative financing structures

Overall, declining valuations and rocky exit pathways have prompted demand for alternative transaction structures and financing solutions, which have provided a counterpoint to turbulent markets. At the same time, venture debt correlates with overall funding conditions, as equity funding tends to constitute a growth company’s primary repayment source.

Non-dilutive measures

With VC backing becoming both scarcer and more costly, start-ups are eyeing non-dilutive financing options as a viable alternative. In 2023, non-dilutive funding for European start-ups increased by 50% compared with the previous year. Unlike venture debt, which may include equity warrants, non-dilutive financing options include revenue-based financing and term loans. While most growth companies continue to prefer external equity financing in order to drive rapid growth, current market conditions have spurred a search for tailored alternative structures.

Bridge rounds

Venture capitalists have increasingly turned to bridge rounds (typically led by, or confined to, existing investors) in order to support their portfolio companies rather than following through with new investment rounds with terms deemed insufficiently attractive. The tendency was particularly discernible among late-stage start-ups, where valuation levels had decreased most significantly. The surge in bridge rounds among early stage start-ups follows an initial period of more favourable capital raising conditions compared to late-stage companies. Bridge rounds were oftentimes combined with a structured element to partially provide liquidity for secondary shares.

Ramifications of trends in deal terms

Deal terms reflect a shifting market

With growth companies running low on cash, a need to raise funds in a compressed timeframe contributed to existing market pressures. Shifting dynamics have led to an altered transactional practice not seen in nearly a decade: venture firms’ enhanced negotiation leverage has permitted more investor-friendly terms, including more sizeable equity stakes and increased or cumulative dividend rights (guaranteed returns such as compounding interests as part of the liquidation preference owed to shareholders, irrespective of the company’s financial performance). Cumulative dividends were present in 4.7% of all US VC deals with dividends in Q4 2021 and, notably, surged to 23.4% by Q1 2024.

In the realm of anti-dilution provisions, only around 2% of transactions are provided with full anti-dilution ratchets to enhance investor protection during down rounds. Most transactions with anti-dilution protection (approximately 80%) used weighted average ratchets.

In purchase or subscription agreements (other than stock purchase agreements in the US), a tangible tendency for founders to stand behind representations and warranties was discernible. This signals a shift by investors towards risk mitigation and a focus on documented due diligence, reflecting, overall, a more prudent investment approach.

Moreover, the allocation of board observer seats to investors’ representatives has increased. This trend mirrors investors’ aspirations for increased appetite for engagement in their portfolio companies’ governance and business aspects.

Consent rights for the benefit of investors have decreased significantly. Compared to 2023, where in 42% of European convertible financings investors managed to secure consent rights to certain matters, in 2024 only 15% of those convertible financings included consent rights for investors. This marked a shift back to more company-friendly terms, where convertible investors typically do not have consent rights on their convertible investment given their non-equity shareholder status at the time of investment. Despite this, and for reasons similar to the shift in pre-emption rights, convertible investors continued to seek information rights in 49% of convertible financings, marking a 26% increase from 2023.

Liquidation preferences have long been nearly ubiquitous in many jurisdictions, especially in early stage financings. Participating liquidation preferences grant investors the right to receive their originally invested amount in the event of a sale or liquidation and, on top of that, share of any remaining proceeds with holders of common stock on a pro rata basis (“double dip”). A non-participating 1x liquidation preference with a conversion right for the investor typically constitutes the default. Despite shifting economics, there has not been widespread adoption of increasing preference multiples to more than 1x (outside of distress scenarios) while regional practices seem to vary slightly. Any such increases, if agreed upon, are typically tailored to the specific circumstances of the situation. By contrast, investors have more frequently been able to negotiate participating liquidation preferences across all stages of a company’s development cycle, compared with recent years.

Continued trend towards standardised documentation

Documentation for equity-based financing continues to move towards standardisation across geographies, with key model documents originating from the US National Venture Capital Association (NVCA), the British Private Equity and Venture Capital Association (BVCA), the German Start-up Association (Bundesverband Deutscher Startups e.V.) and the Simple Agreement for Future Equity (SAFE) (as described in more detail further on in this introductory article). Similar initiatives can be observed in many jurisdictions, including:

• Canada (Canadian Venture Capital and Private Equity Association, or CVCA);
• Singapore (Singapore Venture and Private Capital Association, or SVCA);
• Switzerland (Swiss Private Equity and Corporate Finance Association, or SECA); and
• China (China Venture Capital and Private Equity Association, or CVCA).

NVCA

The NVCA is a trade association that represents the VC industry in the US. It has been publishing model documents for VC financing rounds since 2003, which have become the industry standard for practitioners and are frequently used even in bespoke and sizeable transactions. The set of documentation is regularly updated once a year to reflect evolving market norms. Today, NVCA documents affect key deal terms and market practice well beyond the shores of the jurisdiction they have been designed for.

BVCA

Similarly, the BVCA provides model documents for early stage investments. They illustrate the value standardised documentation for VC transactions holds across jurisdictions. The BVCA documents are utilised for post-seed early stage investments in the UK, particularly in Series A funding rounds ‒ with the aim of facilitating the adoption of an industry-standard legal framework for such investments.

German Standards Setting Institute

The German Standards Setting Institute (GESSI) is a joint project of Business Angels Germany e.V. and the German Start-up Association, which equips (registered) start-ups, business angels and investors with expertly crafted templates for their essential legal documentation, including convertible loans, term sheets and financing-round agreements.

SAFE

Similarly widespread in adoption ‒ among early stage companies, in particular ‒ is the so-called model SAFE agreement. SAFE governs a financial instrument in the early stage financing context and was originally established in 2013 by renowned incubation hub Y Combinator. The template contemplates equity-like financing in exchange for yet-to-be-issued shares, providing founders with flexibility and control with reduced paperwork. Prior to conversion, the investor’s claim is limited to prospectively issuable preference shares ‒ the rights to which are defined in the subsequent financing round. Funds carry no coupon or Paid-in-Kind (PIK) interest in the absence of a predefined maturity.

Key features in SAFE agreements include a valuation cap, which refers to a predetermined maximum for equity upon conversion and discounts investors receive off the price per share paid by new investors in a subsequently priced equity round (with around 20% being the norm). It became the go-to option for US early stage start-ups, owing to its simplicity and focus on future growth potential, and is gradually replacing traditional convertible loan structures as the preferred financing option.

Drawbacks that come with the use of the SAFE structure include an absence of protection or control rights on the part of investors and, with regards to the founding team, a potential underestimation of their collective dilutive effect if used vis-à-vis multiple investors consecutively.

Increasingly exacting foreign direct investment standards

Foreign direct investment regulation has become increasingly relevant in the context of cross-border financing rounds in growth companies, holding the potential to delay closing for non-domestic investors. This trend is evident not only in the US but also in EU countries such as Germany.

CFIUS

The scope of the Committee on Foreign Investment in the US’s (CFIUS) jurisdiction expanded significantly with the enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA) in August 2018. Notably for growth companies, transaction parties are required to submit a mandatory CFIUS filing at least 30 days prior to closing, irrespective of deliberate transaction structuring to grant foreign investors solely passive economic and no other governance or contractual rights. This signifies a re-definition of the “completion date” of a transaction as the date on which any equity transfers to a foreign investor. Most mandatory CFIUS filings relate to US companies involved in advanced technologies (eg, semiconductors) and/or personal data.

On 18 November 2024, the US Department of the Treasury issued a final rule vesting additional authority in CFIUS to review “non-notified” transactions, while generally establishing higher minimum penalties for non-compliance.

Recent developments reflect heightened concern regarding Chinese investors. Prominent examples include the required divestment and removal of improvements on land purchased by MineOne (a Chinese company) within one mile of an Air Force base and the blocking of the Nippon Steel/US Steel transaction after CFIUS referred the deal for a Presidential decision.

For 2025, the US President’s “America First Investment Policy” suggests there will be enhanced focus on restricting Chinese investment in “strategic” sectors (including technology, critical infrastructure, healthcare, agriculture, energy, and raw materials), an expansion in the scope of “critical technologies” that can necessitate a mandatory CFIUS filing, the establishment of a “fast-track” review process “to facilitate greater investment from specified allied and partner sources in US businesses involved with US advanced technology and other important areas” and an attempt to work with Congress to expand CFIUS’s jurisdiction to review “greenfield” investments.

With effect as of 2 January 2025, a Final Rule issued by the US Department of the Treasury requires US persons to notify certain outbound investment transactions and prohibits certain outbound investment transactions, in each case involving persons of “countries of concern” (currently only China) that engage in “covered activities” involving certain sensitive technologies and products in the semiconductors and microelectronics, quantum information technologies, and AI sectors.

Foreign Trade and Payments Ordinance

The past few years have also seen ever-increasing impediments and more exacting standards of review for non-EU investors. At the EU level, the regulatory framework for foreign direct investment (FDI) control is governed by Regulation (EU) 2019/452. However, a significant variance exists among national screening mechanisms, impacting the effectiveness and efficiency of the system in addressing security and public order concerns. Notably, in Germany, there is a 10% threshold in certain cases of critical infrastructure that may include less sizeable companies. If a non-EU/non-European Free Trade Association foreigner seeks to acquire at least 20% of the voting rights in a German company in one of 19 security-relevant areas of high and future technology, a reporting obligation is triggered.

In 2023, seven EU member states collectively accounted for 85% of all cases submitted, underscoring a concentration of screening activities. Given that 80% of FDIs within the EU were concentrated in six key sectors ‒ namely, Information and Communications Technology (ICT), wholesale, retail, financial activities, professional activities and manufacturing ‒ the control of FDI assumed heightened significance in regulating these sectors. The six main jurisdictions of origin were the US, the UK, the United Arab Emirates, China (including Hong Kong), Canada and Japan.

Outlook for 2025

Despite continued significant geopolitical uncertainty, particular headwinds that have held back activity in the VC industry during the post-pandemic years may be fading in 2025: a shift back to more accommodating monetary policy conditions, ventures that have tended to “de-risk” by increasing focus on profitability as opposed to growth, policy trends such as a recognition of the start-up industry as a driver for prosperity in Europe and an openness on the part of the new US administration in respect of crypto-currencies all point to a general resurgence of activity. While the lackluster environment for (sizeable) exits has strained the traditional VC model over the past couple of years, promising candidates, notably in the fintech space, including Stripe, Revolut, Klarna and Chime, may alleviate lingering concerns.

In terms of funds to be deployed, AI is expected to remain the primary focus for VC investors globally. From generative AI that produces content to agentic AI that operates independently, the fields of application are expected to profoundly affect virtually every industry, including healthcare, law and software development. Beyond AI, healthcare and biotech continue to be prime investment sectors, including due to their relative resilience in economic downturns, in both the US and Europe.

Given the current and ongoing geopolitical developments, defence technology and cybersecurity are also becoming increasingly important, illustrated by massive defence technology rounds including, but far from being limited to, California-based Anduril Industries and Mach Industries (specialised in advanced autonomous systems and systems for vertical take-off and landing as well as cruise missiles and other high-performance vehicles) and German start-up Helsing which develops AI software for defence applications. As a notable intergovernmental initiative, the NATO Innovation Fund (NIF) – backed by 24 allied nations and equipped with EUR1 billion – further illustrates the growing institutional focus on defence tech, with prominent venture capitalist Klaus Hommels (Lakestar) serving as chair of NIF’s board of directors.

Due to the European Commission’s five-year plan to streamline regulations and accelerate investments, an instrumental step in attracting capital for financial services has been taken. The so-called “Omnibus” package covers, inter alia, far-reaching simplifications regarding ESG regulations, and aims to reduce the regulatory burden on businesses and thus enhance the EU’s global competitiveness.

Moreover, the movement toward onshoring high-tech manufacturing is in full swing. Developed country jurisdictions globally are striving to reduce their dependence on global supply chains, opening up new and domestic investment opportunities. FDI regulations play a critical role for countries pushing for onshoring by incentivising foreign companies to invest in local production while safeguarding national security, fostering technology transfer, and supporting economic growth.

Exit opportunities

Broadly, venture capitalists continue to see a limited number of M&A exits, while hoping that IPO activity could increase in 2025. Although a widespread rebound in IPOs may take time, there is cautious optimism – amid significant market concerns – that a re-opening could offer a promising pathway for sizeable exits.

Even if the number of prospective unicorn IPOs in 2025 may be limited, the VC market is expected to feel much-needed relief, because these start-ups hold so much value. According to market observers, 2025 may see IPO activity from companies such as CoreWeave, Stripe (both US), Klarna, Revolut (both Europe), Shein and Contemporary Amperex Technology (both Asia).

For other VC-backed start-ups, the possibility of mid-market or distressed buyouts may be a more feasible and realistic exit option. As many VC-backed companies find growth to constitute a currency in depreciation and start-ups are grappling with a path to profitability, bespoke deal terms and features borrowed from private equity (such as contingent consideration components or purchase price withholding mechanics) may be the sole viable option for many exits to occur. Amongst competitors, share-for-share transactions, often coupled with a cash component, may serve as viable M&A alternative, albeit not perceived by VC backers as an ultimate exit.

As a fading bull-market exit option which is unlikely to be available to growth companies in the near term, special purpose acquisition companies (SPACs) are facing challenges such as disappointing performances, structural issues, and dwindling investor confidence. A substantial portion of the 600-plus SPACs that went public in 2021 are approaching or have already passed their business combination expiration dates, resulting in liquidation without completing a de-SPAC transaction. Since the beginning of 2021, only 467 de-SPAC transactions have been completed.

Evergreen funds

With the obvious challenges created by a lagging market for liquidity events, distributions to LPs and corresponding reinvestments, some have suggested that the at least 200 evergreen funds operating with an indefinite investment horizon in the VC space globally may be part of the industry’s response to a shifting investment landscape.

The evergreen fund space is expected by some to grow as the industry tries to mitigate the cyclicality of private markets ‒ albeit subject to regional divergences. The increased flexibility on the part of investment managers may, however, come at the price of significant opportunity costs if and when treasury yields are elevated and assets locked in. The extent to which open-ended investment funds will contribute to addressing temporary market perturbances will therefore be contingent upon the evolution of LPs’ investment preferences, risk appetite, and patience.

Expansion of the secondary market

Private secondary transactions have emerged as a crucial component of the market, enabling private companies’ shareholders to sell in the absence of a liquidity event in order to generate liquidity for other investment opportunities or personal financial needs. The structuring of such transactions has become more sophisticated as it involves the handling of contractual restrictions such as rights of first refusal and, more recently, involved tender offers to later-round investors. Existing secondary investment platforms can open doors to diversification across different industries, stages of growth and geographies.

In recent years, numerous successful growth companies found themselves compelled to remain private for extended periods. This contrasts with the dynamics that prevailed throughout most of the 2010s, when the choice may have been strategic and driven by abundant private funding options. However, given diminishing exit opportunities at sufficiently attractive terms, this decision has become less discretionary in today’s market conditions. Especially for early stage investors, secondary markets can offer an attractive opportunity to exit their investment earlier than anticipated, which becomes particularly pressing when the start-up experiences substantial value appreciation prior to reaching a stage where it either goes public or becomes an attractive M&A target.

At the same time, substantial challenges remain, especially concerning information disparity and particularly on the buy side, where investor demand and willingness to conduct due diligence on growth companies may not be able to adequately address existing supply at all times. Buyers have been seen to anticipate steep discounts regarding the net present value of their investment objects. Nonetheless, liquidity in the private marketplace has increased during the past few years, facilitated by initiatives such as Nasdaq Private Market, an initiative by the London Stock Exchange that has facilitated more than USD45 billion in transactional volume since inception; Forge Global, that expanded into the European market in 2024; and others.

The global marketplace for secondary transactions grew from USD109 billion to a record high of USD152 billion. Against this background, some expect that discounts may become less pronounced in the future or even cross into premiums, leading to secondary purchases above market value. This trend may exacerbate investor hype for access to particular companies (such as those in AI) and widen the chasm between the top performers and lower-conviction start-ups.

Complementary financing structures

With VC deal-making expected by many to rebound in 2025, there is potential for a shift towards a more coherent blend of equity and non-dilutive financing within the capital structure of growth companies.

Globally, start-ups are facing an environment still shaped by a non-negligible discount rate, making debt funding an option that requires careful consideration. However, as existing loans mature, borrowers will likely seek refinancing options and placing reliance solely on equity financing may not suffice. Additionally, there is likely to be a growing demand for non-dilutive debt financing in sectors requiring substantial capital investment ‒ for example, real estate, crypto-mining, aerospace and space technology, as well as clean energy and renewable technology. Besides a persistent bid-ask spread between investors and start-ups as to the valuation evolution of sophisticated private credit concepts, as well as certain subsidised programmes (such as that operated by the European Investment Bank) have contributed to the increasing popularity of venture debt which studies assess accounts for as much as 15% of all venture capital transactions in the US. Worldwide, venture debt is forecast to reach a market volume of USD43.16 billion in 2025.

Anticipated rebound in VC deal-making in 2025

Notwithstanding persistent challenges in the VC market and the struggles faced by many companies in securing funding since 2021, VC deal-making is anticipated to rebound to a certain extent in 2025 and beyond.

Investors are hopeful that macroeconomic and monetary policy conditions will provide for a sufficient degree of certainty, permitting a deployment of dry powder and an exploitation of backlogged opportunities due to a lack of activity since 2023. On the other hand, pressures to find exit opportunities exist, as LPs are yet to realise capital inflows often perceived as overdue and the number of exit candidates with significant valuations has been growing.

VC investments in AI, in particular, can be expected to further outpace investment in all other sectors – even though the focus may broaden into a wider range of sub-sectors including industry solutions and AI-enabled robotics. While the development of crypto, fintech or cleantech are highly contingent upon broader macro trends, industries such as defence tech and cybersecurity will likely continue to attract interest from VC investors against the background of geopolitical tensions.

Market observers believe that there will not be a return to the heady days of 2021, as start-ups and investors act with more discipline going forward. Nonetheless, growth companies and the VC industry will most likely be key drivers behind many of the breakthroughs and innovations of the 21st century and a shaping force for the long-term fate of the global economy.