The first quarter of 2025 witnessed significant venture capital investment despite underlying market challenges. Of the $126.3 billion recorded in global VC funding in Q1’25, and representing a ten-quarter high of Q4’24 VC funding ($118.7 billion), startups in the U.S. accrued over 72%, recording and accounting for $91.5 billion of the total global investment.
The U.S.’s large venture capital funding was especially driven by large AI-funding rounds, with OpenAI’s record-breaking $40 billion funding representing the largest VC funding round ever raised. This testifies to the VC funding landscape’s recent shift to strong investor selectivity, most especially in artificial intelligence (AI), with U.S.-based Anthropic and Infinite Reality also securing $4.5 billion and $3 billion respectively, according to a report made by KPMG.
These achievements, however groundbreaking and postured as a positive thing, still comes across as “bearish” to Kyle Stanford, a lead U.S. venture capital analyst at PitchBook. According to TechCrunch, he “appears to be the most bearish about VC dealmaking since he started covering this [VC] market 11 years ago.”
He argues that he expected significant exits in 2025, which would have created “a cycle where IPOs and big acquisitions would generate tons of cash for investors – and founders – who would then channel plenty of cash back into startup funding,” which, according to TechCrunch is the “Silicon Valley way.” But this did not go as planned due to a myriad of reasons, the major one being market volatility triggered by President Trump’s tariff policy.
It is important to note that while funding increased with a significant shift into AI investment, deal volume took a hit. Per KPMG’s report, global deal volume fell from 8,801 deals in Q4’24 to a record low of 7,551 deals in Q1’25. Likewise in the U.S., “deal volume declined for the fourth consecutive quarter,” despite a jump from $77.2 billion in Q4’24 to $91.5 billion in Q1’25.
KPMG also asserts that a prolonged investor wariness in the U.S. contributed to this deal volume drop. “While VC investors had been optimistic following the US presidential election, renewed concerns over tariffs and related market volatility introduced fresh uncertainty that tempered momentum.” U.S. President Trump had gone on a tariff imposition spree on many countries earlier in the year, including neighboring countries, with Chinese imports bearing the brunt of it.
As a result, it affected countries in the American region, with Canada recording a total VC investment of $917 million across 148 deals, a fall and a record not seen since early 2018. Also, in Latin America, Mexico recorded a drop from $626 million to $281 million. However, the country’s deal volume remained consistent. Only Brazil saw a small increase in VC funding. The Latin American country went from a $464 million funding in Q4’24 and recorded a $562 million in Q1’25 – a round that was supported by strong corporate venture capital (CVC) activity, according to KPMG.
The uptick in funding amounts and the decline in deal volume represent a stark divergence, revealing that while more capital is flowing into the ecosystem, it is only being concentrated in fewer companies such as established AI players, as opposed to it being concentrated or invested in a broad-based manner across the ecosystem.
As such, due to issues like market volatility and a fear of recession that was triggered by President Trump’s tariff policy, geopolitical tensions, a declining early-stage funding, as well as region-specific challenges, success in this context will have to depend on new metrics: sector focus, stage specialization, and the ability to navigate an increasingly complex funding environment where capital is abundant but selectively deployed.
“Industry-focused solutions are going to be particularly hot over the next quarter as startups continue to target the intersection of AI and industry in order to drive unique business value,” Francois Chadwick, a KPMG International Partner added.
However, if a recession happens, all of these will go down the drain as many startups looking forward to a market turnaround may unfortunately come to their end. “If there’s a recession, they lose a lot of their revenues and growth, which could force them to be sold for cents on the dollar or go out of business,” Stanford told TechCrunch.
