Startup Funding Outlook: VCs 'Chasing The AI Wave' But With Caution

Global venture funding in 2024 edged above 2023鈥檚 totals, with AI showing the biggest leap in amounts year to year. The trend continued in Q2 of this year, when global funding reached $91 billion, according to 萝莉视频 data 鈥� an 11% increase year over year.

Overall, the first half of 2025 marked the strongest half-year for venture investment globally since the first six months of 2022, signaling a tentative recovery in the private markets.

But what鈥檚 ahead for the remainder of 2025? Will we continue to see venture funding increase, led by AI? What kind of impact will the flurry of IPOs we鈥檝e seen so far this year have on the private markets?

To get a sense of what鈥檚 ahead, 萝莉视频 News spoke with startup investors from four venture firms: , , and .

Not surprisingly, AI was a dominant theme. But there were varying opinions on just how much it would continue to dominate.

Let鈥檚 dive in.

AI momentum continues

, partner at San Francisco-based Menlo Ventures, believes funding is exploding because 鈥渆veryone is chasing the AI wave and many firms who started late are playing catch-up.鈥�

It鈥檚 still early innings, though, in his view. The funding trend will only accelerate the rest of this year, primarily driven by a broad set of AI application and infrastructure companies 鈥済rowing at unprecedented rates.鈥�

For its part, Menlo entered the AI space by writing its first check into GenAI startup and competitor 鈥檚 May 2023 . In May 2024, Menlo announced the launch of its $100 million AI fund 鈥� named the Anthology Fund 鈥� in partnership with Anthropic.

Murphy calls that venture a 鈥渂ig success鈥� with more than 30 companies having gone from seed to Series A.

鈥淲e couldn鈥檛 be more excited about the next few quarters in the venture market as AI models get more powerful and more entrepreneurs dive into new and existing categories,鈥� he predicted. 鈥淭he pace of change in workflows, productivity and innovation will be unprecedented.鈥�

, the newest investor at San Francisco-based Founders Fund, agrees that AI is 鈥減roviding significant tailwinds,鈥� calling it the 鈥渕ost important technology since the internet.鈥�

He believes the AI boom is the primary driver behind the increased capital deployment 鈥� from venture funding to IPOs and public markets more generally.

鈥淚 expect this to continue over the next 12 to 18 months as models continue to improve and new use cases get unlocked,鈥� he told 萝莉视频 News. 鈥淢ost recently, reinforcement learning on domain-specific data has unlocked new product avenues.鈥�

鈥楢ll in on AI鈥�

Windesheim said that despite all the frenzy around AI, the San Francisco-based firm is trying to 鈥渟tay conscious of overhyped AI rounds,鈥� choosing to be 鈥渧ery deliberate in backing select companies within a vertical.鈥�

For example, he noted, Founders Fund only backed OpenAI among the multiple foundation model labs.

However, he concedes that 鈥淎I will continue to play a very significant role and unlock further opportunities鈥� in the venture world.

Menlo鈥檚 Murphy agrees, noting that everything his firm is pursuing 鈥渉as a strong AI component as the differentiator.鈥�

鈥淪o for us, we鈥檙e really all in on AI,鈥� he told 萝莉视频 News.

That means it may be harder for non-AI companies to raise.

鈥淏ut good businesses will always be able to raise capital,鈥� he acknowledged. 鈥淒efense tech is another area on the rise outside of your more classic AI apps and infra.鈥�

Bain Capital Ventures Partner agrees that AI is top of mind at her firm

鈥淎I is in almost everything we do now,鈥� she said.

To be clear, that doesn鈥檛 mean that the firm is only investing in straight AI companies. It has backed AI companies building for sectors such as law, customer service, sales, education and compliance, among others.

鈥淲e believe that we鈥檙e still in the early phases of harnessing this technology, and anticipate that there will be meaningful opportunities to invest in multiple generations of AI businesses for years to come,鈥� Meyers told 萝莉视频 News.

And the firm is not just talking the talk.

Bain views AI as 鈥渁 critical productivity multiplier for workers of all kinds,鈥� including investors.

For example, she said, the firm is using AI to automate tasks like routine data analysis, synthesizing large volumes of product feedback, and benchmarking competitors.

鈥�… We also increasingly recognize that we can鈥檛 just use AI 鈥� we have to use AI well, identifying where it can accelerate our efforts without eroding their substance or simply creating slop or noise,鈥� Meyers added.

AI will also push adjacent sectors across the broader value chain 鈥� such as energy and semiconductors, which will most likely continue to draw significant attention, noted Founders Fund鈥檚 Windesheim.

Looking ahead, Meyers believes that supply chain, manufacturing and utilities 鈥渁re each huge, important industries that need ways to better harness and leverage data and make processes systematic, and eventually, AI-driven.鈥�

She 鈥渨orries鈥� about business models that hinge on cross-border trade or logistics, given geopolitical uncertainty.

鈥淎nd, the first generation of relatively lightweight AI applications are at risk of being rendered superfluous as foundation models facilitate more and more use cases directly,鈥� she said.

Investing smarter

, founder, CEO and managing partner of Brooklyn, New York-based Left Lane Capital, said his firm is overall 鈥渃autiously optimistic鈥� about the remainder of the year.

Valuations recalibrated following the market correction that took place in the spring and summer of 2022, to Miller, 鈥渁necdotally felt good, up until recently.鈥�

鈥淭he craziness of certain AI have and have-nots are pushing valuations to unprecedented levels, which are akin to 2021, frankly, especially for B2B/enterprise AI companies,鈥� he added.

Still, the broader reset in valuations over the past two years has created a healthier foundation, in his view.

鈥淭hat said, the bar is higher now,鈥� he said. 鈥淲e expect this momentum to continue, particularly for companies with clear profitability paths and consumer resonance. Fundamentals are back in focus, which is a net positive for the ecosystem.鈥�

Back-to-back rounds

Indeed, AI companies are raising rounds in rapid succession, and thus significantly increasing their valuations in short periods of time. Anthropic, for example, saw its valuation jump from $60 billion to $170 billion in the span of six months.

鈥淭here are many examples of AI companies raising follow-on rounds in six to 12 months versus the more standard two years or more,鈥� Murphy said.

However, he expects that it鈥檚 inevitable that there will be some 鈥渙verfunding.鈥�

鈥淢any sectors of AI are overcrowded and potentially undifferentiated, so investors have to be smart about where to invest versus 鈥榩laying the index,鈥� added Murphy.

For now, Windesheim predicts that continued market growth and the unlocking of new markets will propel further 鈥渦p鈥� rounds in and around AI.

鈥淕enerally, I believe this positive market sentiment will continue in the short to mid-term,鈥� he said.

Meyers said she鈥檚 continuing to see valuation reflect trajectory between rounds.

Companies that build momentum 鈥� through sustaining or accelerating growth, innovating on product, building favor with customers 鈥� are raising up rounds, often at valuations that give them credit for future growth, Meyers said.

However, she added, 鈥渃ompanies that don’t demonstrate momentum across these vectors, or whose velocity slows, aren’t seeing large markups.鈥�

The IPO outlook

Does all this mean we should expect to see more IPOs in 2025?

Despite a cloudy macroeconomic environment (such as tariffs and inflation), recent IPO performance has opened the door for more IPOs, 鈥渂ut not the floodgates,鈥� notes Meyers.

Companies including , , and saw massive day-one pops in their public-market debuts, validating strong investor appetite for exposure to high-growth tech. Even companies like 鈥渨ith a quieter debut have delivered solid performance in the longer term,鈥� she pointed out.

On top of that, blockbuster earnings from big tech companies investing heavily in AI encourages market enthusiasm.

鈥淏ut there aren鈥檛 many companies like Figma 鈥� which has customer love, growth, high gross margins 鈥� so we can鈥檛 expect everyone to get a shot at an IPO,鈥� Meyers said. 鈥淏ut the highest quality companies should feel more confident.鈥�

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