A brand new yr brings hope for a greater tomorrow – not less than someway. In the world of enterprise capital, nothing is predictable. The variety of firms within the USA has suffered a severe decline As the Financial Times reports, risk-averse institutional investors only put money into the most important names in Silicon Valley. AI is the one category that appears to be essential, and that doesn't appear to be changing any time soon. But the brand new yr has just begun, and maybe there’s an impetus for change.
We spoke to just a few VCs to get their predictions for the brand new yr – the nice, the bad and what might find yourself being unexpected.
What are your good and bad enterprise predictions for 2025?
Nekeshia Woods, managing partner at Parkway Venture Capital
The good: As high net price individuals lower their return expectations for fixed income securities and money equivalents, they are going to more aggressively hunt down above-average returns in private markets. This channel is predicted to take a position over $7 trillion in private markets by 2033. In response to this expected influx of capital, we now have seen large wealth and asset managers use enterprise capital as a differentiation strategy for his or her private market offerings. These institutions have positioned enterprise as a technique to supply access to the most effective deals while capturing a share of the $7 trillion expected to be invested in private markets through net recent inflows. Fund managers will concurrently work with these institutions to realize access to a brand new set of LPs that may create a brand new, consistent and long-term capital stream for his or her funds.
More good things: We expect there shall be consolidation within the AI space, particularly through acquisitions in areas where AI can grow to be a commodity, similar to large language models. The AI firms that grow to be leaders of their field enter recent market segments and have proprietary data.
Gabby Cazeau, partner at Harlem Capital
The good: The IPO market will fully reopen and we’ll see some big-name IPOs bring much-needed liquidity. This is a win for everybody. In the initial phase, the pace of investment will pick up, perhaps not at the extent of 2021, but actually greater than in 2022-2024. It seems like 2025 shall be a banner yr for firms and the official start of the subsequent bull market.
The bad: 2025 shall be a pivotal yr for AI startups selling to enterprises. Many AI startups have grown rapidly but are still stuck within the “experimental” phase, living off innovation budgets fairly than being a part of core software spend. Many fail to make the leap, leaving quite a lot of startups on the chopping block as churn and slow growth take over.
Triin Linamagi, founding partner at Sie Ventures
The good: The emergence of solo GPs and angel funds will result in increased investment in early-stage firms – a much-needed development for the enterprise capital ecosystem.
We will see more specialized and well-defined investment approaches, with industry-specific, knowledgeable investors providing meaningful value to founders. This shift isn’t only useful for start-ups, but can also be prone to lead to raised returns for investors. Capital allocation for diverse founding teams will proceed to extend, particularly in sectors similar to sustainability and healthcare, where diverse perspectives can drive innovation and impact.
The Bad: Significant M&A or IPO activity is unlikely before the top of 2025 as market conditions remain difficult. Limited partners will proceed to be hesitant to commit capital and can wait for improved distribution of paid-up capital metrics before committing to recent funds.
Michael Basch, founder and general partner at Atento Capital
The good: Long-awaited increased liquidity for LPs through the opening of the IPO and M&A markets. More and more funds and corporations are also taking over secondary transactions. Rebalancing expectations of the zombie firms which can be profitable is not going to produce the outcomes the VCs promised on the cap table and sell them to personal equity at a more informed price. Consolidation and roll-ups in supersaturated spaces (e.g. GLP-1s).
The Bad: Persistently falling unicorns whose valuations have declined significantly as a result of market resizing and rebalancing of growth expectations.
Austin Clements, managing partner at Slauson & Co.
The good: IPO markets are reopening following Service Titan's success, as is M&A activity for personal firms. Finally realizing these gains will increase the liquidity of the LPs behind many enterprise capital firms. This will end in LPs committing to more recent funds – more enterprise funds than in previous years.
The Bad: (LPs) could also be more reluctant to commit to recent fund managers after seeing quite a lot of undisciplined behavior within the last cycle. The unlucky side effect is that among the most revolutionary strategies could have major problems getting funding.
What trends do you think that are here to remain? Which ones will go?
Forest
What stays: Dealmaking will proceed to be favorable for dry powder investors. Investors will proceed to maneuver away from considering “variety of users” as the first consideration when considering products and as an alternative give attention to booked revenue, customer base and costs before investing. The pace of investment may even maintain this investor-friendly environment. We don’t expect enterprise firms to return to the frantic pace of investment of recent years, but fairly to proceed to take a balanced approach.
What will occur: The outlook for IPO activity is moderately positive. Founders' renewed confidence in public markets and competitors coupled with dwindling money flows and highly valued firms which have weathered recent fundraising constraints have right-sized their valuations to raised align with the market. We consider that the patron can also be the primary alternative to take a position in small-cap stocks, considering there are mega-cap technology stocks which have catapulted the US indices to all-time highs and tremendous shareholder value have provided. While there are still quite a lot of firms whose valuations should not yet consistent with the market, there are some, particularly within the technology space, which can be ready for the general public market.
Cazeau
What stays: Small teams increase their sales. We see teams of only one to a few people achieving over $2 million in ARR using AI tools – doing more with less and doing it higher than ever before. Such growth was unprecedented before 2024 and shows how much startups are automating internally with recent software tools. The big query now could be how these teams can scale and construct strong organizations, nevertheless it's impressive to see such growth with such a lean structure.
We may even see a resurgence in investment in reskilling – platforms that address skills shortages in expert trades, manufacturing, hospitality, healthcare and other areas that can not be automated by software.
Linamagi
What stays: AI is here to remain. The widespread use of AI in 2024 marked a major shift, and I consider this momentum will only increase. While it offers tremendous opportunities—similar to improving decision-making, improving business sourcing, and streamlining operations—it also presents challenges. Human intuition and experience remain crucial, especially when evaluating founding teams and their dynamics. This evolution requires LPs to think more critically about how they select managers and construct their portfolios.
What will occur: The Spray-and-Pray Investment Approach. I expect there shall be fewer deals, but with greater care and significant value from investors. This trend, already evident in 2024, signals the top of the “growth in any respect costs” mentality. Instead, investors will prioritize paths to profitability and sustainable business models, which can proceed to be the hallmark of attractive opportunities.
Bash
What stays: (The) supposedly short list of winners within the AI space will proceed to draw significant investor attention at premium valuations. (There shall be a) continued trend of VC-backed firms closing as capital markets grow to be more selective when it comes to funding (and the) continued trend of VCs, particularly at seed stage, being unable to boost recent funds as they arrive due as much as the 2020 and 2021 vintages with poor performance.
Clements
What will occur: The last cycle was a sea change towards more investors backing enterprise SaaS firms and fewer backing consumer applications. I feel this may begin to reverse as AI creates more applications for consumers that weren't possible just just a few years ago. Consumer technology will make a welcome comeback in 2025.
What do you think that could occur on the planet of enterprise capital and startups in 2025?
Cazeau
We could see mergers and even closures of some notable unicorns, lots of which have been industry darlings for years. These firms have barely enough money to make it to 2025, but not enough growth to go further. We are already seeing some consolidation and this may likely speed up through 2025.
Linamagi
A big climate-related disaster, geopolitical conflict, or economic shock can fundamentally alter the startup and VC landscape.
Bash
A surge in enterprise dollars for hard technology as software becomes commoditized as a result of generative AI. Hard Tech within the sense of bio, tech, hardware and other types of deep tech are the main focus. (Plus, there shall be a major increase in firms raising only one seed round and achieving an exit of lower than $100 million in lower than three years of existence – a brand new calculation reveals that firms with distribution could also be in for Founders and VCs could quickly acquire leading-edge products that complement their existing offerings.
Clements
Something unexpected is that OpenAI might be become a for-profit company only for Microsoft to accumulate it in the biggest acquisition ever.
