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What will bring VC this year? We asked some investors

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What will bring VC this year? We asked some investors

A new year brings hope for a better tomorrow – at least. In the world of venture capital, nothing is predictable. The number of companies in the US has decreased significantly because risk-averse institutional investors are spending money only on the biggest names in Silicon Valley, as reported by the Financial Times. AI is the only category that matters, and it doesn’t look like that’s going to change anytime soon. But a new year has begun, and there may be an impetus for change. We spoke to several VCs to gather their predictions for the new year — the good, the bad, and the unexpected. The response has been edited and shortened for clarity. What are the good and bad business predictions for 2025? Nekeshia Woods, managing partner at Parkway Venture Capital The good: As wealthy individuals lower expectations of return for fixed income and equivalent to cash, they will look more aggressive to the private market to produce outsized. 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 large wealth and asset managers use venture capital as a differentiating strategy among private market offerings. The institution has made efforts into a strategy that can give access to the best offers while taking part of the $7 trillion that is expected to be invested in the private market through new flows. Fund managers will work with these institutions to gain access to a new set of LPs that create new, consistent, and long-term capital flows for the fund. Better: We expect the AI ​​field to begin to see consolidation, especially through acquisitions, in areas where AI can become a commodity, like large language models. AI companies that will be leaders in the field open up new market segments and have proprietary data. Gabby Cazeau, partner at Harlem Capital The good: The IPO market will open up again, and we will see some big name IPOs bring much needed liquidity. That’s a win for everyone. On the early stage side, investment pacing will increase, maybe not to the level of 2021, but certainly more than 2022-2024. It looks like 2025 will be a banner year for the venture and hopefully the official start of the next bull run. The bad: 2025 will be a make-or-break year for AI startups selling to enterprises. Many AI startups have developed rapidly but are still stuck in the “experimental” phase, living on innovation budgets instead of being part of the core software. Many won’t make the leap, leaving some 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 GP and angel funds will drive increased investment into early-stage companies – a much-needed evolution for the venture capital ecosystem. We will see a more specialized and well-defined investment approach, with industry-specific investors with the knowledge that provides valuable value to founders. This shift is not only beneficial for the newbies but also leads to better returns for the investors. 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 the end of 2025 as market conditions remain challenging. Limited partners will remain hesitant to distribute capital, waiting for better distribution of paid-in capital metrics before making new funds. Michael Basch, founder and general partner at Atento Capital The good: The long-awaited increased liquidity for LPs with the opening of the IPO and M&A market. More funds and companies are taking secondary as well. A resetting of the expectations of a profitable zombie company will not have the success of VCs at the closing table underwrote, selling at a weaker price for private equity. Consolidation and roll-up in oversaturated spaces (eg, GLP-1s). The bad: Unicorns continue to fall that have significant resets in valuations due to changes in market size and growth expectations. Austin Clements, managing partner at Slauson & Co. The good thing: the IPO market will reopen after the success of Service Titan, as will M & A activity for private companies. Finally, realizing these benefits will increase liquidity for the LPs behind many venture capital firms. This will lead to LPs doing more new funding – more venture funding than last year. The bad: [LPs] may be more reluctant to commit to a new fund manager after seeing a lot of undisciplined behavior in the last cycle. An unfortunate side effect is that some of the most innovative strategies will have a lot of trouble getting funding. What are some trends that you think will stick? Who will go? Woods What will remain: Dealmaking will remain favorable for investors with dry powder. Investors will continue to move away from looking at product use [the] “Number of users” is the main consideration and move to booked revenue, client pipeline, and costs are the main considerations before investing. The pace of investment will also maintain this investor-friendly environment. We do not expect venture capital firms to return to the pace of investment they have experienced over the past few years, but to continue with a balanced approach. What to expect: The outlook for IPO activity is quite positive. Founders’ renewed confidence in the public market and comps coupled with a reduced cash runway and high-value companies that have survived recent fundraising constraints have the right-sized valuations to be closer to the market. We believe that consumers are also primed to invest in small-cap stocks, as mega-cap tech stocks have moved US indexes to record highs and generated tremendous shareholder value. While there are still some companies whose value has not yet tracked to the market, there are some, especially in the technology space, that are ready for the public market. Cazeau What will stay: Small teams scale revenue. We’re seeing teams of just one to three people making $2 million + ARR using AI tools – doing more with less and doing better than ever before. This kind of growth is unheard of before 2024 and highlights how many startups are automating themselves with new software. The big question now is how the team will scale and build a strong organization, but it’s amazing to see such growth with a lean setup. We will also see a resurgence in investment in reskilling – platforms addressing talent shortages in skilled trades, manufacturing, hospitality, healthcare, and other areas that software cannot automate. Linamagi Will it stay: AI is here to stay. The widespread deployment of AI in 2024 marks a significant shift, and I believe this momentum will only grow. While it offers great opportunities – such as improving decision making, increasing deal sourcing, and streamlining operations – it also presents challenges. For example, human intuition and experience remain important, especially when evaluating founding teams and dynamics. This evolution requires LPs to think more critically about how they select managers and build their portfolios. What to do: A spray-and-pray investment approach. I expect to see fewer deals but with due diligence and meaningful value additions from investors. This trend, already visible in 2024, marks the end of the growth-at-all-costs mentality. However, investors will prioritize the path to profitability and a sustainable business model, which will continue to be a characteristic of attractive opportunities. Basch What will remain: [The] the short list of winners in the AI ​​space will continue to command significant investor attention at a premium. [There will be a] the continuing trend of VC-backed companies being closed as the capital market [become] be more selective about funding [and the] the trend continues [of] VC, especially the seed stage, [being] unable to raise new funds due to the performance of the 2020 or 2021 vintages. Clements What to do: The last cycle is a deep shift for more investors to support enterprise SaaS companies and fewer consumer applications. I think this will start to reverse as AI creates more applications for consumers that were not possible a few years ago. Consumer technology is coming back in 2025. What unexpected things do you think could happen in 2025 in the world of ventures and startups? Cazeau We can see the merger or even the closure of some big-name unicorns, many of which have been darlings of the industry for years. These companies only have enough cash to see them through to 2025, but not enough growth to move forward. We are already seeing some consolidation, and this is likely to accelerate towards 2025. Linamagi Climate-related disasters, geopolitical conflicts, or economic shocks have the potential to fundamentally shape the startup and VC landscape. Basch A increases in venture dollars looking at hard technology, as software becomes commoditized due to generative AI. Hard tech as defined by bio, tech, hardware, other forms of deep technology take center stage. [There will also be] a significant increase in companies raising only the seed round and having sub-$100 million out in sub-three years of existence – open a new math that can potentially work for founders and VCs because companies with fast distribution have top products that will complement the existing offer. Clements Something unexpected is that OpenAI can be converted into a for-profit entity only for Microsoft to get it in its biggest acquisition.

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