The State of VC: Q3 2025 shows life is better when you’re large

The one consistent theme for Q3 2025’s US VC results is that life is better when you’re large. According to the Q3 2025 PitchBook NVCA Venture Monitor, large funds raised the lion’s share of capital, exits are recovering thanks to 13 (large) IPOs—seven were unicorns—and the largest AI/ML companies are raising the most money. But the industry is still intensely bifurcated. The distribution drought creates a drag on fundraising, particularly for smaller and newer funds, and those exits that didn’t occur through IPOs were largely young startups acquired early by other VC-backed companies. Dealmaking is similarly split, as companies that aren’t in the AI/ML sector are struggling. Until exits truly gain momentum, fundraising will continue to lag.

Fundraising appears to be on track to meet pre-pandemic levels, as 2025’s first three quarters saw 376 funds raise $45.7 billion. Extrapolating to a theoretical full year, 501 funds might be expected to raise $60.9 billon—activity levels not seen since before 2015 (fund count) or at least 2018 (capital). LPs are holding back due to the ongoing liquidity drought caused by under-performance and a resulting lack of exits.

Wariness among LPs also appears in the extended time it now takes to close a fund. The median time that a VC fund spends in the market has climbed to 15.6 months, up 60% from 2022’s 9.7 months. Around 70% of the 2,220 funds launched during 2021 and 2022 have raised a successor, and those in the market appear to be unwilling to cut target sizes. In this difficult period, LPs are staying with the firms they know, especially since many of the largest operators span stages and provide exposure to opportunities at all maturities.

The flight to quality is concentrating fundraising with the largest platforms. The top 10 funds have raised 42.9% of funds committed through the third quarter, a record in at least a decade, continuing the trend we observed in Q2. The remaining funds that closed were almost evenly distributed between emerging (177 vehicles) and established (199) firms, although the number for emerging managers was the lowest since 2015.

Exit activity in Q3 2025 marked the strongest quarter since the end of 2021, with $75.6 billion from 362 exits. That number included 13 IPOs, which produced $36.4 billion, an eye-watering 2,861% increase over Q3 2024’s value. Seven of these listings were unicorns (Firefly Aerospace, Figma, Gemini, Netskope, StubHub, Via Transportation, and Figure Technology), raising hopes that the exit engine may finally be sputtering to life.

The liquidity dilemma has apparently intruded into IPO structures. PitchBook research by Dr. Jay Ritter of University of Florida shows that a larger proportion of the shares sold into these IPOs came from existing stockholders rather than new shares sold by the company itself. Between 1990 and September 19, 2025, an average of 91.5% of shares sold in IPOs came from the company. For the first three quarters of 2025, that figure falls to 86.2%. This trend indicates that in some cases, companies are using IPOs to generate liquidity for their investors and early employees, rather than for themselves.

Acquisitions as an exit avenue generated $39.2 billion, much of it driven by companies seeking AI capabilities. VC-backed companies themselves made 23% of acquisitions, as they sought to “buy vs. build” capability. This trend is also seen in buyouts, as PE firms acquire VC-backed companies as add-ons. This activity was concentrated among early-stage companies, especially seed and A-round, which made up 75% of the total for the year and more than 70% for the quarter. One can expect, then, that the current exit environment is shaped like a barbell: a few high-valued unicorns and a large number of early-stage startups that get acquired to boost an established company’s functionality in a specific area.

Dealmaking in Q3 showed signs of life as VC firms invested $80.9 billion in 4,208 transactions. This represented a 4.9% increase from the last quarter, and boosted 2025’s deal value above the totals for any of the past three full years. If momentum persists, 2025’s deal count will end up in third place behind 2021 and 2022.

Once again, the activity was bifurcated between the AI/ML sector, which flourished, and everyone else, who was struggling to raise capital. AI/ML deals made up 37.3% of the deal count but absorbed 64.3% of the capital. Large companies, many of which overlap with the AI/ML sector, similarly dominated. While this demonstrated the VC industry’s sustained commitment to the AI/ML sector, PitchBook cautions that these valuations (some as high as $183 billion) “raise the bar for what these businesses must ultimately generate for their investors.”

Life outside the AI fast lane has become more difficult. Through Q3 2025, the share of sub-$5 million rounds fell to 50.3% of all VC deals, the lowest proportion of the past decade. For comparison, these made up more than 71% of total VC deals in 2015 and 57% of the total just last year.

The VC market continues to be mixed. The AI sector is still red-hot; everyone else much less so. A few IPOs do well; others don’t. Fundraising continues to slog along with established funds raising money and others working for every dollar.

Macroeconomic factors seem similarly mixed. The Middle East may be calming down, but what about Ukraine? How will the new tariffs against China work out? The government shutdown has effectively slammed the IPO window shut. Q3’s activity has positioned 2025 for a fragile recovery, but how Q4 will wrap up is anyone’s guess.