A new year brings with it hope for a better tomorrow — kind of, at least. In the world of venture capital, nothing is quite predictable. The number of firms in the U.S. has taken a sharp dip as risk-averse institutional investors splash money on only the biggest names in Silicon Valley, as reported by the Financial Times. AI is the only category that seems to matter, and that doesn’t look to be changing anytime soon. But the new year has just started, and perhaps so has the impetus for change. 

We spoke to some VCs to gather their predictions on the new year — the good, the bad, and what might end up being the unexpected.

Their responses have been edited and shortened for clarity.

The good: As wealthy individuals lower their return expectations for fixed income and cash equivalents, they will look more aggressively to private markets for outsized returns. This channel is expected to invest over $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 their private market offerings. These institutions have positioned venture to be a strategy where they can offer access to the best deals while capturing a portion of the $7 trillion expected to be invested in private markets through net new flows. Fund managers will simultaneously partner with these institutions to gain access to a new set of LPs that create a new, consistent, and long-term capital stream for their funds.

More good: We expect the AI field to start seeing consolidation, primarily through acquisition, in areas where AI can become a commodity, like large language models. The AI companies that will make it to be leaders in their field are opening new market segments and owning proprietary data. 

The good: The IPO market will fully reopen, and we’ll see some big-name IPOs bring much-needed liquidity. That’s a win for everyone. On the early-stage side, investment pacing will pick up, maybe not to 2021 levels, but certainly more than 2022-2024. It feels like 2025 will be a banner year for 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. A lot of AI startups have grown quickly but are still stuck in the “experimental” phase, living on innovation budgets instead of being part of core software spend. Many won’t make the leap, leaving a number of startups on the chopping block as churn and slow growth take over.

The good: The emergence of solo GPs and angel funds will drive increased investment into earlier-stage companies — a much-needed evolution for the venture capital ecosystem. 

We’ll see more specialized and well-defined investment approaches, with industry-specific, knowledgeable investors providing meaningful value to founders. This shift is not only beneficial for startups but is also likely to deliver better returns for investors. Capital allocation to diverse founding teams will continue to grow, particularly 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 late 2025 as market conditions remain challenging. Limited partners will remain hesitant to deploy capital, waiting for improved distribution to paid-in capital metrics before committing to new funds.

The good: Long-awaited increased liquidity for LPs with an opening of the IPO and M&A markets. More funds and companies taking secondaries as well. A reset of expectations of the zombie companies that are profitable not going to have the outcomes the VCs on the cap table underwrote, selling at a more grounded price to private equity. Consolidation and roll-ups in oversaturated spaces (e.g., GLP-1s).

The bad: Continued falling unicorns that have significant reset in valuations due to market resizing and growth expectations resetting. 

The good: IPO markets will reopen following the success of Service Titan, as will M&A activity for private companies. Finally realizing these gains will increase liquidity for the LPs behind many venture capital firms. This will lead to LPs committing to more new funds — more venture funds than in years past. 

The bad: [LPs] may be more reluctant to commit to new fund managers after seeing a lot of undisciplined behavior in the last cycle. The unfortunate side effect is that some of the most innovative strategies will have a lot of trouble getting funded.

What are some trends that you think will remain? Which ones will go?

What will stay: Dealmaking will remain favorable to investors with dry powder. Investors will continue to move away from looking at products using [the] “number of users” as a key consideration and move toward booked revenues, client pipeline, and costs as key considerations prior to investing. The pace of investing will also maintain this investor-friendly environment. We do not expect venture firms to return to the frenzied pace of investing experienced for the past couple of years but instead continue with a balanced approach.

What will go: The outlook for IPO activity is moderately positive. Founder-renewed confidence in the public markets and comps coupled with dwindling cash runways and those high-valued companies that have survived the recent fundraising constraints, have right-sized their valuations to align more closely with the market. We believe that the consumer is also prime for investing in small-cap stocks, given the mega-cap technology stocks that have moved U.S. indexes into all-time highs and returned tremendous shareholder value. While there are still a number of companies whose valuations are not yet tracking to the market there are some, primarily in the tech space, that are ready for the public market.

What will stay: Small teams scaling revenue. We’re seeing teams of just one to three people hitting $2 million+ ARR using AI tools — doing more with less and doing it better than ever. This kind of growth was unheard of before 2024 and highlights how much startups are automating internally with new software tools. The big question now is how these teams will scale and build strong organizations, but it’s impressive to see such growth with such a lean setup.

We’ll also see a resurgence in investment around reskilling — platforms addressing talent shortages in skilled trades, manufacturing, hospitality, healthcare, and other areas that software can’t automate away.

What will stay: AI is here to stay. The widespread deployment of AI in 2024 marked a significant shift, and I believe this momentum will only grow. While it offers immense opportunities — such as enhancing decision-making, improving deal sourcing, and streamlining operations — it also presents challenges. For instance, human intuition and experience remain vital, particularly when evaluating founding teams and their dynamics. This evolution will require LPs to think more critically about how they select managers and construct their portfolios.

What will go: The spray-and-pray investment approach. I expect we’ll see fewer deals but with greater diligence and meaningful value-add from investors. This trend, already evident in 2024, signals the end of the growth-at-all-costs mentality. Instead, investors will prioritize paths to profitability and sustainable business models, which will continue to be the hallmark of attractive opportunities.

What will stay: [The] perceived short list of winners in the AI space will continue to command significant investor attention at premium valuations. [There will be a] continued trend of VC-backed companies shuttering as capital markets [become] more selective in terms of funding [and the] continued trend [of] VCs, especially seed stage, [being] unable to raise new funds due to rough performing 2020 or 2021 vintages.

What will go: The last cycle was a deep shift to more investors backing enterprise SaaS companies and fewer backing consumer applications. I think this will start to reverse as AI creates more applications for consumers that just weren’t possible a few years ago. Consumer tech will make a welcome comeback in 2025. 

We could see mergers or even closures of some big-name unicorns, many of which have been industry darlings for years. These companies have just enough cash to make it to 2025, but not enough growth to go any further. We’re already seeing some consolidation, and this will likely accelerate into 2025.

A significant climate-related disaster, geopolitical conflict, or economic shock has the potential to fundamentally reshape the startup and VC landscape. 

A surge 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 tech taking center stage. [There will also be] a significant increase in companies raising only a seed round and having a sub-$100 million exit in sub-three years of existence — revealing a new math that could potentially work for founders and the VCs due to companies with distribution quickly acquiring top products that will complement their existing offering.

Something unexpected is that OpenAI could convert to a for-profit entity just for Microsoft to be able to acquire it in the largest acquisition ever.