2025 Venture Report
Venture’s Great Repricing Continues...
Venture Capital’s Recovery: The Macro-Driven Resurgence
Venture markets don’t just turn on a dime. Given the cutting-edge nature of the technology we invest in, you’d think these markets would be nimble, highly adaptable, and quick to react. The inconvenient truth? Venture markets are highly cyclical, the antithesis of the secular growth companies we are so capitalistically attracted to. The macro environment has its grip firmly on the gas pedal, and whether we like it or not, it can throttle on or off as it pleases.
2024 was defined by this dynamic. On the surface, venture capital (VC) rebounded: Total deal value surged nearly 29%, and after years of stagnation, late-stage capital showed some signs of life. But the forces shaping the recovery were macro first, venture second. Inflation remained sticky, treasury yields climbed, and despite multiple Fed rate cuts, financial conditions stayed tighter than many had hoped. AI remained the defining theme, acting as both a deflationary force and an investment thesis. The divergence in AI’s impact created a stark valuation split: AI-powered companies commanded premiums, while those facing AI-driven disruption saw capital retreat.
As we enter 2025, the defining question isn’t whether VC is recovering, but what type of recovery this will be. The easy-money era is over. Efficiency, durability, and clear paths to profitability are in demand. The macro backdrop is shifting faster than we’ve seen before, and venture markets must navigate the new reality.
A Tale of Two Markets: AI vs. Everything Else
AI dictated the terms of venture funding in 2024. The numbers tell the story:
Seed-stage pre-money valuations: $12.5M for non-AI startups vs. $17.9M for AI startups (42% premium)
Series A pre-money valuations: $40.0M for non-AI startups vs. $51.9M for AI startups (30% premium)
Series B pre-money valuations: $95.0M for non-AI startups vs. $143.0M for AI startups (50% premium)
AI accounted for 37% of all venture funding but only 17% of total deals, meaning capital was concentrated in fewer, higher-value investments. If you weren’t AI, or at least AI-adjacent, you likely didn’t see the same tailwinds. Meanwhile, AI’s deflationary forces compressed margins in industries selling into automation-heavy sectors, creating a difficult environment for legacy SaaS businesses.
AI has become the hottest table in the venture casino, but the question remains: Have we already rolled a 7 and just haven’t realized it yet? The COVID-era capital boom flooded startups with funding, but investors are still waiting to see if those bets will pay off, or if they’ve already been wiped from the table.
The Exit Bottleneck: LP Liquidity Remains a Challenge
Exits remained the major bottleneck for venture in 2024. While IPOs made a comeback, venture-backed companies accounted for 46% of total IPO proceeds, total exit volume remains a fraction of its peak.
Total exits: 1,259 deals worth $149.3B (+24.4% YoY)
IPO volume: $43.4B (up from $30.2B, but still below 2017 levels)
M&A deal value: $82.6B (+26.7% YoY), but deal count declined slightly (-1.6%)
The issue? Regulatory scrutiny has kept M&A markets sluggish. The FTC’s aggressive stance has led to increased deal reviews and higher uncertainty for strategic acquisitions. With LP distributions still depressed, fundraising and liquidity remain challenged across the venture ecosystem.
The Macro Forces: When Rate Cuts Don’t Behave
Historically, lower Fed rates have meant lower Treasury yields, easing financial conditions for venture. But 2024 defied expectations.
The Fed cut rates three times in 2024
The 10-year Treasury yield climbed from 3.63% to 4.55%
Liquidity remained tight, keeping valuations compressed outside of AI
The bond market didn’t buy the Fed’s narrative. Instead of easing conditions, inflation persistence, record government deficits, and weaker foreign demand for U.S. debt kept long-term rates high, directly impacting late-stage venture. In this environment, investors are rethinking risk, and growth-stage capital remains expensive.
The Midwest Venture Market: A Play for Efficiency
The Midwest venture market continued to showcase resilience in 2024, proving that capital isn’t just flowing—it’s being deployed with greater conviction.
Total Midwest deal value: $9B (+4.7% YoY)
Indiana’s venture funding: NVCA-PitchBook reported a $1B milestone (+99.4% YoY), but Elevate Ventures’ proprietary data presents a more measured, yet still strong, reality: $619M in total deal value (+17.5% YoY), with deal count rising 22.7% to 173 transactions.
Venture arbitrage remains strong: Midwest startups continue to trade at a 58% discount to national median valuations, offering investors higher ownership stakes and greater capital efficiency.
Despite macroeconomic headwinds, Indiana’s venture ecosystem is proving its durability. While the national numbers paint an optimistic picture, the real takeaway is that the market is growing in a way that signals long-term sustainability. Larger checks, increasing investor confidence, and improving access to growth capital indicate that the Midwest, Indiana in particular, is maturing as a venture hub.
The Future: The Recovery is Here, But It’s Not an Easy One
Venture is rebounding, but this isn’t a return to the old playbook. The dynamics that shaped the last cycle, zero interest rates, capital abundance, and growth-at-all-costs, aren’t coming back. Instead, 2025 is shaping up to be a market defined by discipline, divergence, and macro uncertainty.
Here’s what we expect:
1️⃣ The Long End of the Curve Will Finally Decline, But It Won’t Be a Straight Line
As inflation moderates and AI-driven productivity gains take hold, long-term rates should ease, unlocking much-needed liquidity for late-stage venture.
However, the bond market is still in control. If deficit-driven Treasury supply continues to push yields higher, capital markets could remain constrained longer than expected.
2️⃣ Venture Liquidity Will Improve, But Not Evenly
IPOs will return, but selectively. High-growth, capital-efficient companies will see stronger demand, but overfunded, cash-burning startups will still struggle to find an exit.
M&A will pick up gradually. The regulatory overhang remains, but as bid/ask spreads tighten and acquirers get more comfortable, we expect increased dealmaking, particularly in sectors where AI is disrupting incumbents.
LPs will cautiously reallocate. While we don’t expect a flood of new capital, improving distributions will allow for more selective commitments to funds that prove they can generate liquidity.
3️⃣ Growth at Any Cost is Over, Real Growth Will Command the Premiums
Companies that can scale efficiently and demonstrate clear organic growth will capture investor interest.
AI remains a major force, but not all AI plays will win, investors will favor startups with clear use cases and defensible moats.
In a market that’s still pricing risk conservatively, strong fundamentals will matter more than ever.
The Bottom Line?
This recovery won’t be defined by free-flowing capital, it will be selective, measured, and increasingly competitive. The companies and investors who succeed in 2025 will be the ones who recognize that the rules have changed, and adapt accordingly.
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