1. Macro Snapshot & Market Dynamics
1.1 Funding Volume & Deal Count
- Global VC investments reached $101 billion across ~7,356 deals in Q2 2025. KPMG
- However, this figure understates resilience: the prior quarter was inflated by a single $40 billion AI mega-round, which, when excluded, makes the underlying momentum more consistent. Bain+3EY+3KPMG+3
- Over H1 of 2025, global startup funding was around $91 billion — up ~11% year-over-year, though down ~20% from Q1 to Q2. Crunchbase News+2CB Insights+2
- In 2024, total reported VC financing globally rose ~31% from 2023 ($163.6 b → $214.3 b) in the U.S. market alone. WilmerHale+1
- But while total deal value is up, deal counts are down, reflecting a market that rewards fewer, stronger bets. McKinsey & Company+2Bain+2
1.2 Regional Divergence
- The U.S. continues to dominate, accounting for ~70% of global VC flows in some quarters. NVCA+3KPMG+3Bain+3
- Asia, notably China, is seeing contraction amid regulatory headwinds and capital constraints. KPMG+2McKinsey & Company+2
- Europe has shown modest resilience: a slight dip quarter-over-quarter, but holding ground in many markets. KPMG+1
- India and Southeast Asia are bright spots: India remains steady quarter-to-quarter, and investors are renewing confidence in fintech, mobility, and scalable tech infrastructure. McKinsey & Company+3Crunchbase News+3VC Lab 2.0+3
1.3 Exit Markets & Liquidity
- Exit activity (IPOs, M&A) remains sluggish relative to prior boom years. KPMG+2CB Insights+2
- Many investors are leaning more on secondary markets and buyouts/late-stage M&A as exit alternatives. Business Insider+2Bain+2
- Some newer VC firms are launching with specialized, concentrated models (e.g. only 10 investments) to optimize exit clarity and focus. Wall Street Journal
2. Thematic & Sectoral Trends
2.1 AI, DeepTech & Tools vs. Consumer Hype
AI continues to dominate headlines and capital flows:
- In 2025, AI-related startups account for 45% of VC funding in some analyses. alpha-sense.com+5Bain+5KPMG+5
- But beyond foundational models and generative AI, developer tooling, infrastructure, and enabling stacks (e.g., model fine-tuning platforms, monitoring tools, domain-specific AI) are seeing the fastest uptick in interest. KPMG+4Bain+4VC Lab 2.0+4
- DeepTech (robotics, materials, sensors) and frontier sectors (quantum, space tech, bioengineering) are gaining traction as VCs seek long-duration bets. Bain+4VC Lab 2.0+4GoingVC+4
- In contrast, mass consumer / B2C hype plays are less central — capital is now gravitating more to defensible, sustainable models.
2.2 Fund Strategy & Structure Evolution
- Concentration over diversification: Some emerging firms adopt ultra-focused portfolios (e.g. 10–15 companies), betting on deep conviction. Wall Street Journal+1
- Mid-sized funds gaining attention: While mega-funds steal headlines, many investors and LPs are gravitating to middle-tier funds where returns per dollar might be stronger and less crowded. KPMG+2Bain+2
- Corporate Venture Capital (CVC) recalibration: In 2025, many CVC arms are becoming more disciplined. They invest fewer deals, more targeted, and seek greater autonomy from corporate bureaucracy. Silicon Valley Bank
- Hybrid models (equity + debt, capital-efficient structures) are being explored, especially in regions where capital is tighter. McKinsey & Company+1
- Governance design changes: Board sizes are shrinking (e.g. six members at Series C+), and founders are pushing to retain more equity — signaling a shift in power balance. Fenwick
2.3 Risk, Valuation, and Discipline
- Valuation “premiums” persist for AI and frontier plays, but across more traditional tech sectors, VCs are applying stricter due diligence and placing more emphasis on fundamentals (revenue growth, unit economics, cash runway). KPMG+4Fenwick+4Deloitte+4
- Early-stage deals are holding up better — Series A and seed rounds have seen valuation increases, even while late-stage (Series D+) valuations compress. Fenwick+2Fenwick+2
- Geopolitical uncertainty, macro volatility, regulatory risk, and currency fluctuations are elevated concerns. Bain+3VC Lab 2.0+3VC Lab 2.0+3
- Some industry watchers caution of a “hype bubble” in AI startup valuations, especially for firms with preliminary traction but limited revenue. Reuters
2.4 Emerging Markets & Regional Shifts
- Regional VCs are emerging in Africa, Southeast Asia, Latin America, and the Middle East, seeking to back locally grounded solutions.
- In India, Bessemer raised $350 million for its second India fund focusing on AI-enabled startups and fintech. Reuters
- In Asia, the reorganization of GGV into Granite Asia (focusing on Asia & Southeast Asia) underscores the strategic reorientation of capital across geographies. Wikipedia
- In Europe, defense, security, and sovereign tech are becoming rising themes (e.g., European defense tech deals gaining investment). Financial Times
- Secondary market plays (buying existing stakes in private companies) are increasingly a way for VCs in emerging markets and legacy firms to get exposure. Business Insider
3. Spotlight: VC Firms & New Entrants
- Striker Venture Partners: Launched in 2025 with a focused model — one $165M fund, 10 LPs, 10 investments — focusing on AI, cybersecurity, and infrastructure. Wall Street Journal
- Touring Capital: Closed its inaugural $330M fund to back AI-driven software firms. The Economic Times
- 137 Ventures: Makes strategic secondary investments in high-growth private companies like SpaceX, taking long-term concentrated positions. Business Insider
- Bonfire Ventures: On the seed-stage B2B and AI track — in 2025, Bonfire closed a $245M fund (Bonfire IV) to continue backing early software/AI firms. Wikipedia
- Basis Set Ventures: Specializes in AI-first early-stage investing, deploying ML and probabilistic methods in sourcing and analysis. Wikipedia
- Granite Asia: Focused on Asian tech, as part of a split from GGV, with ambitions to add hybrid capital strategies. Wikipedia
These firms exemplify several trends: specialization, concentrated portfolios, use of data/ML in decision-making, and regional focus.
4. Implications & Best Practices
4.1 For Founders & Startup Teams
- Focus on fundamentals: Especially in mid-stage, investors are less tolerant of narrative-only growth. Emphasize capital efficiency, unit economics, and clear paths to value.
- Build defensibility and moats in infrastructure, stack, IP, or domain-specific advantage — not just feature-level differentiation.
- Be selective with capital needs: raising large rounds at high valuations can backfire in turbulent exit cycles.
- Prepare for more rigorous due diligence: expect deeper validation on traction, monetization levers, and scenario stress tests.
- Think global, act local: If in an emerging market, lean into region-specific use cases, regulatory understanding, and capital partners concerned with local dynamics.
- Leverage media memorability: Recent research suggests how a startup is perceived in media (its distinct narrative) can tangibly affect investor attention.
4.2 For VC Investors & GPs
- High conviction + concentrated bets may outperform broad portfolios in volatile times.
- Deploy AI/analytics in sourcing & screening: models and tools (even LLM-based) are increasingly used to predict founder success, deal flow, and signal extraction from limited data. (See e.g. VCBench)
- Stay nimble in fund strategy: adopt more flexible capital structures (e.g., hybrid debt/equity), staged deployment, and adaptive reserves.
- Strengthen LP communication & alignment: in uncertain markets, transparency, clarity of thesis, and risk management are key.
- Explore secondary markets: acquiring stakes in high-potential private companies can be less capital-intensive and offers optionality. Business Insider
- Tap underinvested regions: emerging markets often offer asymmetric return potential, though accompanied by higher risk.
4.3 Risks & Headwinds to Watch
- Valuation euphoria in AI or speculative segments may lead to corrections if ROI doesn’t match expectations. Reuters
- Macro shocks (inflation, interest rates, currency swings) and regulatory shifts (antitrust, export controls, data sovereignty) can destabilize capital flows.
- Exits remain constrained; if IPO windows close again, pressure on liquidity and cash flows will intensify.
- Failure to manage concentration risks (overexposure to one sector) may disproportionately penalize portfolios.
- Geographic capital flows may be disrupted by geopolitical tensions, trade wars, or sanctions.
5. What to Watch Through Late 2025 & Into 2026
Will more VCs adopt quantitative/ML-enabled decision support (i.e. algorithmic deal sourcing)?.
Will the IPO and public markets re-open broadly — enabling more VC-backed firms to list?
Can new mega-fund deals (or outlier rounds) emerge to reshape quarterly aggregates?
Will AI valuations normalize (i.e. fall from “premium multiples”) or will underlying productivity justify the premium?
Could new themes (e.g. climate tech, sustainability, synthetic biology) take stronger hold beyond the AI-first narrative?
How will regulation (especially in data, cloud infrastructure, AI, export restrictions) influence cross-border investing?