Why, Despite AI, US Venture Fundraising Dropped 35% in 2025

Despite the frenzy to invest in AI, US venture capital fundraising dropped 35% in 2025, a 70% drop from 2022. 

The reason is that because of the IPO drought - which has become a famine - startups are choosing to remain private or seeking alternative financing vehicles. This trend has become self-reinforcing because the venture industry cannot raise enough money due to perpetually delayed or cancelled IPOs, which means it no longer appears to have the scale to support the vast sums needed for AI investment. The question now is that if they can't convince money managers and wealthy individuals to invest with them now - given the sums being raised - what will ever give venture investors the incentive to come back? JL

Kate Clark reports in the Wall Street Journal:

Fundraising for U.S. venture-capital firms dropped 35% in 2025, the most anemic stretch in at least six years, with money flowing primarily to the most trusted investment firms as companies stay private longer. The slowdown reflects a continuing liquidity crunch. Startups that have been flush with venture funding have opted to remain private, rather than exposing themselves to public market scrutiny. A prolonged IPO drought that has returned little cash to investors is now complicating efforts to raise new capital. The drop in fundraising helps explain why cash-intensive AI businesses are looking beyond traditional venture firms. The $66 billion raised last year represents a 70% drop from the 2022 record.  "The venture market doesn’t have the firepower to do this investing.”

Fundraising for U.S. venture-capital firms dropped 35% in 2025, the most anemic stretch in at least six years, with money flowing primarily to the most trusted investment firms as companies stay private longer.

The $66 billion raised last year represents a 70% drop from the 2022 record, according to new data from research firm PitchBook.

The slowdown reflects a continuing liquidity crunch. Startups that have been flush with venture funding have opted to remain private, rather than exposing themselves to public market scrutiny. A prolonged IPO drought that has returned little cash to investors is now complicating efforts to raise new capital.

 

The drop in fundraising helps explain why cash-intensive AI businesses are looking beyond traditional venture firms for capital, such as the deep-pocketed sovereign-wealth funds, family offices and hedge funds.

“Collectively, the venture market doesn’t have the firepower to do this investing,” Clarkson said of the largest AI rounds. “It must be coming from other sources as well.”

Funding for U.S. AI startups reached a record $222 billion in 2025, more than double 2024 levels, according to PitchBook. Last year’s total includes OpenAI’s $40 billion haul, a $4 billion round for data-analytics company Databricks and AI coding tool Cursor’s $2.3 billion raise.

Next year’s potential slate of IPOs, which could include blockbuster listings from SpaceX, OpenAI and Anthropic, could ease the pain and give investors more firepower to fund AI investments.