The venture capital market entered 2025 with cautious optimism, according to Pitchbook’s Q1 2025 Venture Monitor, with the realities of economic volatility, policy headwinds, and limited liquidity tempering early-year expectations. Despite a handful of headline-making deals, the broader VC outlook remains cautiously optimistic for startups, investors, and fund managers alike.

Market Volatility Dims Recovery Outlook

Uncertainty in U.S. financial markets, exacerbated by newly announced tariffs, has caused investors to pull back, postponing IPO plans and deal execution. Klarna and Hinge Health, among others, have delayed going public due to increased market volatility, and M&A has skewed toward early-stage startups, which typically generate lower returns.

While some notable exits (like CoreWeave’s IPO and the pending acquisition of Wiz) offered a glimmer of recovery, they are the exception. Overall, the exit market remains quiet, and most capital is flowing into a small number of high-profile companies.

Dealmaking: Big Deals Dominate, Smaller Rounds Decline

• Total deal count for Q1 hit 3,990—a 10.9% increase QoQ, on par with Q1 2024.

• Deal value rose to $91.5 billion, up 18.5% QoQ, driven by massive AI-related investments.

• Just 10 deals over $500M accounted for 61.2% of total VC dollars this quarter. Excluding OpenAI’s $40B raise, the remaining nine still made up 27%.

Artificial intelligence remains the clear bright spot. OpenAI, Anthropic, Infinite Reality, and Groq were responsible for the quarter’s five largest financings. Despite fears that AI momentum might stall, major tech players continue to invest aggressively—though tariffs on semiconductors may pose a looming threat to future deal flow.

Meanwhile, investor caution is reshaping deal composition:

• The share of deals >$50M rose to 6.6%, up from 3.9% in 2023.

• Deals <$5M dropped to just 36%, the lowest in a decade.

• First-time financings remain sluggish, with just $3.8B invested across 892 deals.

Fundraising Overview

Fundraising struggles continued in Q1:

• $10B raised across 87 funds—tracking toward the lowest annual total in 10 years.

• Capital is concentrated: over 70% of funds raised in 2024 came from top-decile firms.

• Just one U.S. VC fund crossed the $1B threshold in Q1.

Liquidity constraints and poor distributions remain top-of-mind for LPs. Managers are moving slowly and stretching deployment timelines—77% of firms that raised in 2021–2022 haven’t launched new funds. The result: dry powder dropped from $324.5B to $289.7B.

Still, managers who have raised recently show strong historical outperformance:

• 5-year horizon: +6.1%

• 10-year: +9.8%

• 15-year: +9.4%

Healthtech Update

After a two-year decline, healthtech VC activity is showing early signs of stabilization. Deal count remains well below the 2021 peak but appears to be leveling out as investors cautiously re-engage. Notably, the healthtech sector is seeing bigger bets on more mature companies (including significant preventative health players).

Key insights:

• Late-stage deals dominated healthtech activity in Q1 2025, continuing a multi-year trend where Series C and growth-stage rounds account for the largest share of deal volume.

• Deal sizes are climbing: The average healthtech VC deal size hit $30.8 million in Q1—up significantly from previous years—while median deal size held steady around $4 million.

• Valuations reached new highs: The average pre-money valuation soared to $145 million, with median valuations reaching $48 million—indicating continued investor appetite for high-quality assets despite overall caution.

• Total deal count is still below pre-2020 levels, but the capital invested per deal has grown, highlighting a flight to scaled, later-stage opportunities in the sector.

While the market hasn’t fully rebounded, the elevated valuations and focus on late-stage companies suggest that investors still believe in healthtech’s long-term potential—especially those with strong clinical validation and commercial traction.

Despite ongoing headwinds, the resilience of key sectors like AI and healthtech, combined with a clear flight to quality, suggests that venture capital is recalibrating—not retreating—and laying the groundwork for a stronger, more disciplined market ahead.