What will this year bring for venture capital? We asked some investors

The new year brings with it hope for a better tomorrow, at least. In the world of venture capital, nothing is completely predictable. Number of companies in the United States has taken a sharp decline While risk-averse institutional investors are spending money on only the biggest names in Silicon Valley, as the Financial Times reported. Artificial intelligence is the only category that seems to matter, and it doesn’t look like that’s going to change anytime soon. But the new year has just begun, and the impetus for change may be as well.

We spoke to some venture capitalists to gather their predictions for the new year — the good, the bad, and what might end up being unexpected.

Their responses have been edited and condensed for clarity.

What are your good and bad forecasts for projects in 2025?

Nikeshia Woods, Managing Partner at Parkway Venture Capital

Goodness: As wealthy individuals lower their expectations for returns on fixed income and cash equivalents, they will look more aggressively to private markets for outsized returns. This channel is expected to invest more than $7 trillion in private markets by 2033. In response to this expected influx of capital, we have seen wealth and large asset managers use venture capital as a differentiated strategy among their private market offerings. These institutions have positioned the project as a strategy through which they can provide access to the best deals while capturing a portion of the $7 trillion expected to be invested in private markets through net new flows. Fund managers will simultaneously collaborate with these institutions to access a new pool of limited partners that create new, consistent, long-term capital flow for their funds.

More good: We expect the AI ​​field to begin to see consolidation, primarily through acquisition, in areas where AI can become a commodity, such as large language models. The AI ​​companies that will make them leaders in their field open up new market segments and own proprietary data.

Gabe Kazoo, Partner at Harlem Capital

Goodness: The IPO market will fully reopen, and we will see some big-name IPOs bring much-needed liquidity. This is a win-win for everyone. In the early stage, the pace of investment will pick up, perhaps not to 2021 levels, but certainly more than in 2022-2024. It looks like 2025 will be a great year for adventure and adventure Hopefully The official start of the upcoming rookie race.

The bad: 2025 will be a crucial year for AI startups selling to enterprises. Many AI startups have grown rapidly but are still stuck in the “beta” phase, living off innovation budgets rather than being part of core software spending. Not many will make the leap, leaving a number of startups on chopping block with slow growth taking over.

Triin Linamagi, Co-Founder at Sie Ventures

Goodness: The emergence of solo general partners and angel funds will increase investment in early-stage companies – a much-needed development in the venture capital ecosystem.

We will see more specialized, well-defined investment approaches, as investors with specialized industry knowledge deliver meaningful value to founders. This shift is not only beneficial for startups, but is also likely to generate better returns for investors. Capital allocation to diverse founding teams will continue to grow, especially in sectors like sustainability and healthcare, where diverse perspectives can drive innovation and impact.

The bad: There is unlikely to be meaningful M&A or IPO activity until late 2025 as market conditions remain challenging. Limited partners will remain reluctant to distribute capital, waiting for distribution to paid-in capital metrics to improve before committing new funds.

Michael Bash, Founder and General Partner at Atento Capital

Goodness: A long-awaited increase in liquidity for limited companies with the opening of the IPO and M&A markets. More funds and companies are taking second place as well. Resetting expectations for dead profitable companies will not achieve the results that venture capital firms guaranteed on the cap table, selling at a more stable price to private equity. Merging and twisting in supersaturated spaces (eg, GLP-1s).

The bad: The continued decline of startups whose valuations have been dramatically reset due to changing market size and recalibrating growth expectations.

Austin Clements, Managing Partner at Slawson & Company

Goodness: IPO markets will reopen following the success of Service Titan, as will M&A activity of private companies. Finally, realizing these gains will increase liquidity for the LPs behind many venture capital firms. This will result in limited companies committing more new funds – more venture funds than in previous years.

The bad: [LPs] Investors may be more hesitant to commit to new fund managers after seeing so much erratic behavior in the last cycle. An unfortunate side effect is that some of the most innovative strategies will have great difficulty obtaining funding.

What are some trends that you think are here to stay? Which ones will you go?

Woods

What will remain: Deal making will remain favorable for dry powder investors. Investors will continue to shy away from looking at products using… [the] “Number of users” as a key consideration and moving towards booked revenue, customer pipeline and costs as key considerations before investing. The pace of investment will also maintain this investor-friendly environment. We do not expect venture companies to return to the frenetic pace of investment witnessed over the past two years, but instead expect them to continue to follow a balanced approach.

What will go: The outlook for IPO activity is somewhat positive. Founders’ renewed confidence in public markets and companies, coupled with dwindling cash runways, and those highly valued companies that have escaped recent fundraising constraints have adjusted their valuations to more closely align with the market. We believe the consumer is also the first choice for investing in small-cap stocks, given the huge technology stocks that have taken US indices to all-time highs and created tremendous value for shareholders. While there are still a number of companies whose valuations are yet to track in the market, some, primarily in the technology space, are ready for the public market.

Kazoo

What will remain: Small teams increase revenue. We’re seeing teams of just one to three people reach $2M+ ARR using AI tools – doing more with less and doing it better than ever before. This kind of growth was unknown before 2024, highlighting the extent to which startups are automating internally with new software tools. The big question now is how these teams will scale and build strong organizations, but it’s impressive to see such growth with such a lean setup.

We will also see a rebound in investment around reskilling, which are platforms that address talent shortages in skilled trades, manufacturing, hospitality, healthcare, and other fields that software cannot automate.

linamage

What will remain: Artificial intelligence is here to stay. The widespread deployment of AI in 2024 represents a major shift, and I believe this momentum will grow. While it offers tremendous opportunities – such as enhancing decision-making, improving deal sourcing, and streamlining processes – it also presents challenges. For example, human intuition and experience remain vital, especially when evaluating enterprise teams and their dynamics. This evolution will require limited partners to think more critically about how they select managers and build their portfolios.

What will go: The spray-and-pray investment approach. I expect to see fewer deals but more diligence and meaningful added value from investors. This trend, which is already evident in 2024, signals the end of the growth-at-all-costs mentality. Instead, investors will prioritize paths to profitability and sustainable business models, which will remain the hallmark of attractive opportunities.

Bash

What will remain: [The] The perceived short list of AI winners will continue to attract significant interest from investors at premium valuations. [There will be a] The trend of venture capital-backed companies closing as capital markets continues [become] More selective in terms of financing [and the] Continuing trend [of] Venture capital funds, especially seed stage, [being] Unable to raise new funds due to harsh 2020 or 2021 performance.

Clements

What will go: The last cycle has been a profound shift toward more investors backing enterprise SaaS companies and fewer supporting consumer applications. I think this will start to decline as AI creates more applications for consumers that wouldn’t have been possible a few years ago. Consumer technology will make a welcome return in 2025.

What unexpected thing do you think could happen in 2025 in the world of projects and startups?

Kazoo

We could see mergers or even closures of some big-name companies, many of which have been industry darlings for years. These companies have enough money to get to 2025, but not enough growth to go any further. We are already seeing some consolidation, and this is likely to accelerate through 2025.

linamage

A major climate-related disaster, geopolitical conflict, or economic shock has the potential to radically reshape the startup and venture capital landscape.

Bash

A significant increase in venture funds looking into hard technology, as software becomes a commodity due to generative AI. Hard technology as defined by biotechnology, devices and other forms of deep technology taking center stage. [There will also be] There has been a surge in companies raising just a seed round and exiting for less than $100 million in less than three years of existence – revealing a new calculus that can work for founders and VCs because companies with distribution quickly get the best products that will complement them. Their current offers.

Clements

Something unexpected is that OpenAI could turn into A for-profit entity Only for Microsoft to acquire it in its largest acquisition ever.