A new year brings with it the hope of a better tomorrow – at least. In the world of venture capital, nothing is quite predictable. The number of US firms has fallen sharply as risk-averse institutional investors allocate money only to the biggest names in Silicon Valley, as reported by the Financial Times. Artificial intelligence is the only category that seems to matter and that doesn’t seem likely to change anytime soon. But the new year has just begun, and perhaps so is the impetus for change.
We spoke to several VCs to gather their predictions for the new year—the good, the bad, and what could end up being unexpected.
Their responses have been edited and shortened for clarity.
What are your good and bad business predictions for 2025?
Nekeshia Woods, managing partner at Parkway Venture Capital
The good: As wealthy individuals lower their return expectations for fixed income and cash equivalents, they will look more aggressively to the private markets for big returns. This channel is expected to invest over $7 trillion in private markets by 2033. In response to this expected capital inflow, we have seen large wealth and asset managers use venture capital as a differentiating strategy among their equity offerings. private market. These institutions have positioned entrepreneurship as a strategy where they can provide access to the best deals while capturing a share of the $7 trillion expected to be invested in private markets through net new inflows. Fund managers will simultaneously partner with these institutions to gain access to a new pool of LPs that create a new, sustainable and long-term flow of capital for their funds.
better: 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 it to the leader in their field are opening up new market segments and owning proprietary data.
Gabby Cazeau, partner at Harlem Capital
The good: The IPO market will fully reopen and we will see some big name IPOs bring in the much needed liquidity. This is a win for everyone. In the early stage, the pace of investment will increase, perhaps not to the levels of 2021, but certainly more than 2022-2024. It feels like 2025 will be a banner year for entrepreneurship and with hope the official start of the upcoming bull run.
The bad: 2025 will be a new year for AI startups selling to enterprises. Many AI startups have grown quickly but are still stuck in the “experimental” phase, living off innovation budgets rather than being part of core software spend. Many won’t make the leap, leaving a number of startups on the chopping block as duplication and slow growth take over.
Triin Linamagi, founding partner at Sie Ventures
The good: The emergence of GPs and angel funds will drive increased investment in early-stage companies—a much-needed evolution for the venture capital ecosystem.
We will see more specialized and well-defined investment approaches with knowledgeable, industry-specific investors that provide founders with meaningful value. This change is not only beneficial for startups, but is also likely to bring better returns for investors. The allocation of capital 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: Meaningful M&A or IPO activity is unlikely until late 2025 as market conditions remain challenging. Limited partners will remain hesitant to commit capital, waiting for improved distribution in paid-in capital metrics before committing to new funds.
Michael Basch, founder and general partner at Atento Capital
The good: Increased long-awaited liquidity for LPs with an opening of the IPO and M&A markets. More funds and companies taking secondaries as well. A reset of expectations zombie companies that are profitable won’t have the results that signed VCs to the cap table, selling at a more private equity-based price. Consolidation and accumulation in saturated spaces (eg GLP-1).
The bad: The continued decline of unicorns that have significant resets in valuations due to changing market size and resetting growth expectations.
Austin Clements, managing partner at Slauson & Co.
The good: IPO markets will reopen after the success of Service Titan, as well as M&A activity for private companies. Ultimately realizing these benefits will increase liquidity for LPs behind many venture capital firms. This will cause LPs to commit to more new funding – more venture funding than in years past.
The bad: (LPs) may be reluctant to commit to new fund managers after seeing too much unruly behavior in the last cycle. The unfortunate side effect is that some of the most innovative strategies will be very difficult to finance.
What are some trends that you think will stick? Which ones will go?
Forests
What will stay: The deals will remain favorable for dry powder investors. Investors will continue to move away from looking at products using () “number of users” as a primary consideration and move towards booked revenue, customer pipeline and costs as primary considerations before investing. The pace of investment will also maintain this investor-friendly environment. We do not expect venture firms to return to the frenzied pace of investment experienced over the past two years, but rather to continue with a balanced approach.
What will go: The outlook for IPO activity is moderately positive. Founders’ renewed faith in public markets and compounds, coupled with shrinking cash runways, and those high-value companies that have survived recent fundraising restrictions have right-sized their valuations to more closely related to the market. We believe the consumer is also prime to invest in small-cap stocks, given the high-cap technology stocks that have driven US indexes to all-time highs and returned tremendous shareholder value. While there are still a number of companies whose valuations are not yet tracking the market, there are a few, mostly in the technology space, that are ready for the public market.
Cazeau
What will stay: Small teams scaling revenue. We’re seeing teams of just one to three people achieve $2M+ ARR using AI tools – doing more with less and doing it better than ever. This kind of growth was unheard of before 2024 and highlights how much 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 structure.
We’ll also see a resurgence of investment around reskilling — platforms that address talent shortages in skilled trades, manufacturing, hospitality, healthcare and other fields that software can’t automate.
Linamagi
What will stay: HE is here to stay. The widespread deployment of AI in 2024 marked a significant shift, and I believe this momentum will only grow. While it offers tremendous opportunities – such as increasing decision-making, improving deal assurance and streamlining operations – it also presents challenges. For example, human intuition and experience remain vital, especially when evaluating founding teams and their dynamics. This evolution will require LPs to think more critically about how they select managers and construct their portfolios.
What will go: The spray and pray investment approach. I expect we will see fewer deals, but more diligence and meaningful added value from investors. This trend, already visible in 2024, signals the end of the growth-at-any-cost mentality. Instead, investors will prioritize paths to profitability and sustainable business models, which will continue to be hallmarks of attractive opportunities.
Basch
What will stay: The perceived short (list) of winners in the AI space will continue to attract significant investor attention at premium valuations. (There will be a continued trend of VC-backed companies closing down as capital markets (become) more selective in terms of funding (and) a continued trend (of) VCs, especially in the early stage, (of unable) to raise new funds due to the approximate performance of the 2020 or 2021 harvests.
Clement
What will go: The last cycle was a deep shift towards more investors backing enterprise SaaS companies and less supporting consumer applications. I think this will start to change as AI creates more applications for consumers that were simply not possible a few years ago. Consumer technology will make a welcome comeback in 2025.
What is something unexpected that you think could happen in 2025 in the world of entrepreneurship and startups?
Cazeau
We may see mergers or even closures of some big-name unicorns, many of which have been industry darlings for years. These companies have enough cash to see them through to 2025, but not enough growth to go beyond. We are already seeing consolidation and this is likely to accelerate in 2025.
Linamagi
A significant climate-related disaster, geopolitical conflict, or economic shock has the potential to fundamentally reshape the startup and VC landscape.
Basch
An increase in venture dollars looking at hard technology as software becomes commoditized due to generative AI. Hard technology as defined by bio, technology, hardware, other forms of deep technology take center stage. (There will also be) a significant increase in companies that raise only one seed round and have a sub-$100 million exit in sub-three years of existence—revealing a new math that could potentially work for founders and VCs due to distribution companies quickly purchasing the best products to complement their existing offering.
Clement
Something unexpected is that OpenAI could turn into a profitable entity only for Microsoft to be able to buy it in the biggest acquisition ever.
