The venture capital industry is still in a funk. More than two years after the collapse of IPOs and funding for start-ups, the unicorns that once dominated this market have yet to recover. Even the market euphoria and huge investments being put into AI have not been a panacea.
“The VC landscape is lacking meaningful exits, driven by a host of issues, including buyer-seller valuation mismatches stemming from inflated rounds in previous vintages and regulatory headwinds impeding deal appetite at the larger part of the market,” says PitchBook executive vice president Nizar Tarhuni, who leads the research and data analyst groups.
He adds that “the proliferation of early-stage AI-focused transactions at hefty valuations masks a broader venture industry still facing corrective challenges.” As Institutional Investor has previously reported, the industry has flirted with innovations to return cash to investors, including continuation funds, which managers can use to roll companies into a new vehicle.
The market values for the big VC-backed companies — those valued at $500 million or more — are at levels last seen in 2017, PitchBook says. “This has become a major problem for the market because of how it has grown and how much value is now locked in these illiquid securities,” according to the annual review of the VC industry by PitchBook and the National Venture Capital Association.
VC portfolios are aging, owning more companies valued at $500 million “than ever before,” and investors are “unable or unwilling to reinvest” in them, PitchBook says. “For venture to return to a more normal level of dealmaking and fundraising, large exits will need to occur at a more steadfast pace,” PitchBook and NVCA predict.
On the fundraising side, PitchBook points out, more unicorns have been created by “the spending spree on AI,” which it says created “a false sense of growth in the market.”
Deals for Databricks, OpenAI, xAI, Anthropic, and Waymo, the autonomous vehicle ride-hailing service, accounted for more than $42 billion of the $209 billion raised last year. All 15 unicorn deals came to $53.5 billion, or about 26.5 percent of the total funds raised. Without them, 2024 fundraising would have been on par with 2018, even though there were far more deals six years ago.
Though flush fundraising for AI dominated the news, most of the VC exit activity last year was in small companies that aren’t generating high enough returns to meet investors’ needs, according to PitchBook. “LPs have poured nearly $1 trillion into VC funds over the past decade, [but] small exits and small returns do not foot the bill to cover the risk of the investment,” the private markets research firm said in the annual review.
Last year, some 1,300 VC companies managed to complete exits, the same number as before the peak year of 2021. But these companies are smaller than previous ones. In 2024, more than 70 percent of the exiting companies had raised only early Series A financing.
Companies valued at $500 million or more accounted for just 3.6 percent of the total number of completed exits, yet they represented 78.9 percent of the value of deals. PitchBook says that was similar to 2023, when 2.6 percent of exits of these companies generated 76.5 percent of the total exit value.
Even when such companies did manage to go public last year, it was often at a lower valuation than previous rounds. That was the case for Reddit and ServiceTitan, both of which exited at multibillion-dollar valuations. Reddit, ServiceTitan, Astera Labs, and Rubrik all ended the year above their IPO market caps, but three others — Tempus, an AI precision medicine company; mobile technology company Ibotta; and biotech Alumis — fell below their IPO values.
Tarhuni says PitchBook is “cautiously optimistic” about 2025, citing a “more M&A- and business-friendly presence in Washington, coupled with more time for start-ups and investors to recalibrate expectations around valuations, deal structures, and growth.”
“For now, the market is in waiting, and fundraising and dealmaking figures do not yet signal material increases in activity,” PitchBook and NVCA note.
