H1 2025 Venture and Startup Funding Overview
The U.S. venture capital market is staging a marked comeback in 2025. After a two-year period of contraction, capital deployment is rising again, though the number of transactions remains subdued. This divergence points to a market prioritizing high-conviction, high-value investments, especially in artificial intelligence and infrastructure software.
According to market data from Crunchbase and KPMG, U.S. venture-backed companies raised approximately $145 billion in the first half of 2025. This represents a 43% increase compared to the same period in 2024, making it the most active six-month period since the peak years of 2021–2022. However, deal activity tells a different story. Fewer than 3,100 deals were closed in Q1, a level not seen since 2016. While total capital invested has increased, the transaction count has declined, indicating heightened investor selectivity and a concentration of funds in fewer hands.
Megadeals and Sector Concentration
Artificial intelligence is the most prominent driver of the funding surge. OpenAI’s $40 billion round in Q1 led the field, followed by Scale AI’s $14.3 billion raise and Anthropic’s $4.5 billion capital infusion. These three companies alone accounted for more than 40% of total U.S. venture funding in Q1. Their valuations, each exceeding $10 billion, underscore investor confidence in the commercial scalability of generative AI, machine learning infrastructure, and AI-enabled enterprise solutions.
Sequoia specializes in seed stage, early stage, and growth stage investments in private technology companies, including those in the clean tech, consumer internet, crypto, financial services, healthcare, mobile, and robotics sectors
Cybersecurity also attracted significant capital in Q2, with nearly $5 billion invested. Companies focused on zero-trust architecture, secure data pipelines, and AI-enhanced monitoring systems led the way. Other sectors such as biotech, fintech, and healthtech remain active but have been outpaced by AI in both deal size and investor attention.
California Remains the Center of Gravity
California continues to dominate the national venture landscape in both deal volume and aggregate capital raised. The San Francisco Bay Area is home to OpenAI, Scale AI, and Anthropic, the year’s three largest fundraisers. Applied Intuition, based in Mountain View, raised capital in June at a $15 billion valuation, more than doubling its 2024 valuation and reflecting broader investor interest in autonomous systems and simulation platforms.
While later-stage deals in California remain strong, early and mid-stage startups face steeper expectations around revenue traction and capital efficiency. This has led to a more disciplined funding environment, even in a state long characterized by risk-tolerant capital deployment.
New York Builds on Sectoral Diversity
New York’s venture ecosystem has not matched the scale of California’s AI boom but remains a vital national player due to its sectoral breadth. The city continues to attract capital in fintech, enterprise software, healthcare, and public safety technology.
Several New York–based startups in digital health and insurtech, including Cohere Health and Oscar Health, received follow-on rounds in the first half of 2025. Meanwhile, investment activity in public safety and law enforcement platforms increased nationwide. Notably, companies such as Flock Safety and Peregrine Technologies raised a combined $990 million as of July, with strong investor participation from New York-based funds.
The city's density of financial institutions and corporate buyers remains a key advantage for early-stage startups, helping New York retain its position as one of the top three U.S. hubs for seed and Series A funding.
Deal Terms and Valuations Reflect a High Bar
Despite the overall rise in funding, deal volume in the seed and Series A stages has continued to decline. Seed-stage deals are down nearly 28% year-over-year, although median valuations have risen. In Q1, the median seed valuation was $16 million, while Series A valuations ranged between $48 million and $52.5 million. These figures suggest that while fewer early-stage companies are receiving funding, those that do are commanding significant premiums—likely due to traction, team strength, or market differentiation.
This dynamic also reflects broader investor behavior. Capital is increasingly being allocated to fewer, larger bets. Investors are favoring companies with clear monetization paths, defensible IP, and long-term platform potential.
Venture Fund Performance Holds Steady
Despite fewer liquidity events, the performance of U.S. venture funds remains resilient. Median internal rates of return (IRR) for 2017-vintage funds are tracking at approximately 11.5%, with top-quartile funds reporting IRRs near 28%. Total value to paid-in (TVPI) ratios are averaging 1.72x, and distributions to paid-in (DPI) remain modest at 0.27x, reflecting an environment where many exits are delayed, but paper gains remain healthy.
Y Combinator is an American technology startup accelerator and venture capital firm.
Concentrated Optimism
The U.S. venture capital market is experiencing a disciplined rebound in 2025. Investors have returned to the table, but with a sharper focus on capital efficiency and market clarity. Artificial intelligence will likely continue to dominate funding patterns for the remainder of the year, but opportunities in cybersecurity, digital infrastructure, and regulated tech sectors are also gaining traction.
California and New York will remain critical hubs, although capital is flowing more selectively across the ecosystem. For founders, the message is clear: the bar is higher, but the capital is there for those able to meet it.
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