The Great Startup Purge: 2025 Didn’t Kill Venture — It Made It Smarter

Executive Summary

2025 wasn’t a downturn. It was a filter.

Funding volumes held up at $110B across U.S. startups, but capital was allocated to fewer, sharper deals. Carta’s data confirms what we’ve already felt in our dealflow: Investors are backing founders with traction, lean teams, and scalable AI infrastructure.

The fluff is gone. What remains: Real businesses, real ownership, and clear roadmaps to revenue.

What’s Happening Now?

• $110B invested across Carta in 2025, but fewer deals than in 2024 – down to 2020 levels in terms of frequency.

• AI dominates: 44% of all VC deals included AI in 2025. In SaaS and healthcare, AI-backed startups represented 64% and 48% respectively.

• Fewer down rounds: Only 14% of deals were down rounds (down from 21% in 2023), signaling growing optimism and valuation stability.

• Solo founders are rising: Single-person startups accounted for 25% of early-stage formation, and co-founders are keeping over 50% equity on average.

• Time to first hire increased: Founders are holding off on team expansion – focusing on burn efficiency and leverage through tech.

Source: Carta – State of Startups 2025

What This Means for Investors

• The venture market isn’t shrinking — it’s sharpening.
  Fewer deals, better terms, tighter equity caps, and AI-native infrastructure.

• AI is no longer a buzzword.
  It’s the default tech stack. Investors without deep AI conviction will miss entire categories.

• Cap tables are stabilizing.
  Carta’s data shows healthier option pools and stronger founder ownership — ideal for long-term alignment and exit modeling.

• Early-stage remains king.
  While late-stage fundraising has thinned out, Series Seed to B is where durable growth and attractive entry points still live.

What’s Next?

We expect 2026 to be a builder’s market.

• AI + recurring revenue will drive valuations.

• Asset-backed business models will surge in relevance — especially for capital allocators seeking cash-yielding, downside-protected exposure.

• Lean founder teams will outperform. Carta’s solo-founder trend matches our own thesis: small, sharp, owner-driven businesses are back in vogue.

This aligns precisely with our fund's direction — toward AI-leveraged, asset-backed, scalable companies with a clear revenue strategy and long runway.