A periodic check-in on the world of venture capital helps track trends in the source of most of America’s innovation. The latest National Venture Capital Association report has been released, covering through Q1 2025. (NVCA Report) Liquidity events, especially initial public offerings, remain very muted; as does the number and total value of funding rounds. While there was anticipation that the new administration might create some tailwinds for venture activity, instead the uncertainty, even chaos, has created additional paralysis. Funding is highly concentrated with 10 transactions over $500 million accounting for over 60% of all investment. Two large tech exits generated substantial value, but excluding those, exit activity was extremely weak.
Total number of financing rounds stayed relatively stable on a year-over-year basis, but at the subdued level of the last two years. Total amount invested has increased significantly in the last two quarters, but as noted above, that is largely due to a very small number of large investments. First time financings are down, as VCs have become more risk averse. One good thing from the VC perspective is that funding rounds are generally having investor-friendly terms, including valuations. One reason for limited IPO activity is poor stock performance from many venture-backed firms that recently went public.
San Francisco, Los Angeles, New York and Boston continue to see the bulk of total financing rounds. Despite the hype about bringing manufacturing back to the US, there is no apparent surge in funding for the sector. As you might imagine, anything related to artificial intelligence is getting a lot of interest. Corporate investors seem particularly focused on this sector. The lack of exits is affecting raising of new venture funds, with very low total commitments from investors. 2024 was a very slow year, especially if a couple of large funds are ignored and Q1 suggests 2025 may be a record low year. One ameliorating factor is that VC funds still have substantial unused capital from early fundraising.
In regard to healthcare, for biotechs and life sciences tool companies an additional source of uncertainty around FDA activities and the pace of approvals appears to be leading to a funding decline. There is less concern about health care services businesses, as health spending and its growth, unfortunately from my perspective, appear to be untouched. Health technology investing has been on a plateau and much of the financing has shifted to later-stage companies.
Overall, this critical cycle for powering the American economy is sluggish and struggling.
