Strategic Positioning in a Rebounding Market
As we enter 2025, the venture capital market is regaining momentum. While fundraising remains slow, deal activity is picking up, particularly in the AI sector. According to PitchBook’s 2025 Allocator Solutions: Private Market Opportunities report, allocators are entering a new cycle defined by tighter capital supply, improved deal terms, and a renewed focus on fundamentals.
The PitchBook VC Dealmaking Indicator averaged 73 across early-stage, late-stage, and venture growth segments. These investor-friendly conditions present an opportunity, but only for those with discipline and patience.
AI Is Dominating the Narrative but Demands Discretion
AI now accounts for over 40% of total VC deal value this year. The rush to fund the next frontier of machine learning, infrastructure, and application layers has pushed early-stage AI valuations to elevated levels. This mirrors the dynamic seen in 2021, when investor enthusiasm outpaced discipline.
Source: Pitchbook 2025. The VC Dealmaking Indicator from 2010 to 2024 highlights strong conditions for allocators entering the market, especially in early-stage rounds.
While the long-term potential of AI is undeniable, investors must take a measured approach. Not every AI company is built to scale. The focus should be on firms with proprietary data, specialized infrastructure, or clear application use cases that create barriers to entry.
Capital Supply and Down Rounds: A Tactical Advantage
The broader VC market remains constrained. Fundraising has dropped significantly since its peak in 2021. Startups are seeking capital at a rate 2.3 times higher than the volume being deployed, according to PitchBook. This dislocation creates favorable dynamics for allocators.
Flat and down rounds are becoming more common, particularly outside the AI sector. These situations often represent compelling entry points into quality companies that were previously overvalued.
Source: Pitchbook 2025. VC dry powder has held firm at $282.2 billion, while deal volumes remain subdued.
The balance of power is shifting back toward capital providers. Patient allocators have the leverage to set terms and prioritize investor protections.
Exit Backlog and the M&A Setup
More than 40% of U.S. unicorns have been in portfolios for over nine years, representing roughly $1 trillion in value. As founders grow more receptive to strategic acquisitions, M&A activity is expected to rise.
A more business-friendly regulatory environment may also support this trend. As the IPO window gradually reopens and M&A ramps up, allocators should see healthier distributions and improved liquidity.
Where Allocators Should Focus
In this evolving environment, disciplined capital deployment is essential. LPs should:
- Focus on managers with a proven history of navigating recovery cycles
- Identify AI investments with true technical or data moats
- Lean into undervalued sectors and geographies outside of the current hype cycle
- Target companies open to acquisition, recapitalization, or consolidation
Final Perspective
Venture capital has always been cyclical. The best-performing vintages often follow market dislocations. As valuations recalibrate and fundraising lags, 2025 may prove to be one of the most attractive entry points in years.
Success will favor allocators who resist the urge to chase headlines and instead focus on value, execution, and timing.
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