VC Outlook 2025: Cautious Optimism Amid Surging AI Investment
VCs Are Investing in AI at Record Levels—But With a Strategic Approach
Global venture funding is picking up again. In the first half of 2025, VC activity reached $91 billion in Q2 alone—an 11% increase over the same period last year. This marks the strongest half-year for global VC investment since early 2022, signaling a cautious but growing recovery in private markets.
What’s driving the surge? One clear answer: AI.
But while VC firms are heavily backing AI companies, they’re also approaching investments more carefully. To understand where the market is heading, investors from Menlo Ventures, Founders Fund, Bain Capital Ventures, and Left Lane Capital shared their views.
Why VCs Are Betting Big on AI
Matt Murphy, partner at Menlo Ventures, says the funding spike is no accident. “Everyone is chasing the AI wave,” he said, explaining that many VC firms are scrambling to catch up after entering the space late.
Menlo Ventures was early to act, investing in Anthropic’s $450 million round in 2023. By 2024, the firm launched a $100 million AI-focused fund, backing over 30 companies from seed to Series A. Murphy predicts that as AI models improve, VC interest will keep climbing—especially in infrastructure and workflow tools that show rapid growth.
At Founders Fund, investor Robert Windesheim calls AI the most transformative tech since the internet. He expects VC firms to keep pouring capital into AI over the next 12 to 18 months, especially as new use cases continue to emerge from improvements like reinforcement learning on domain-specific data.
All In on AI—But Selectively
Despite the hype, some VCs are still selective. Abby Meyers of Bain Capital Ventures says her firm is wary of inflated valuations. “We’re being deliberate,” she said, noting that Bain chose to back OpenAI rather than spreading investments across multiple model labs.
Still, Meyers agrees that AI is now part of almost every investment decision. “AI will continue to play a major role and create new opportunities,” she said, pointing to applications across legal, education, compliance, and more.
Murphy echoes this. “Everything we pursue has a strong AI component,” he said. “We’re all in on AI.”
However, both agree that strong non-AI companies—especially in sectors like defense—can still raise capital, even if the spotlight is on AI right now.
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How VCs Are Using AI Themselves
Bain isn’t just investing in AI—they’re also using it. Meyers shared that her team now relies on AI to handle tasks like data analysis, product feedback review, and competitor benchmarking.
But she’s clear: using AI well matters. “We’re focused on where AI helps without creating noise or undermining quality,” she said.
Windesheim believes AI will also boost related sectors like energy and semiconductors, drawing more VC interest as the ecosystem matures.
Risks and Opportunities in the VC Landscape
Some risks remain. Meyers points out that supply chain, manufacturing, and utilities are ripe for AI disruption, but they face challenges from geopolitical instability.
She also warns that early AI products—especially lightweight applications—could become obsolete as foundational models expand their capabilities.
Murphy adds that overfunding is a real concern. “Many AI sectors are overcrowded,” he said. “VCs need to be strategic rather than following the crowd.”
At Left Lane Capital, CEO Harley Miller says the firm is cautiously optimistic. The post-2022 correction helped reset valuations to healthier levels—but he notes that some AI startups are now seeing valuations spike again, reminiscent of 2021.
“The bar is higher now,” Miller said. “VCs are focusing on companies with strong fundamentals, profitability paths, and real customer traction.”
AI Startups Raising Faster Rounds—and Higher Valuations
AI companies are raising back-to-back rounds at record speed. Take Anthropic: its valuation jumped from $60 billion to $170 billion in just six months.
Murphy says follow-on rounds are happening every 6 to 12 months, compared to the traditional two-year cycle. But he warns that this pace won’t last forever.
“There will be winners, but some sectors will be overfunded and undifferentiated,” he said.
Windesheim is still bullish. “Positive momentum will likely continue, especially as new markets open up,” he said.
What the IPO Market Means for VCs in 2025
What about exits? Meyers sees some signs of life in the IPO market, though she stops short of calling it a full rebound.
Companies like ServiceTitan, Circle, Chime, and Figma have had strong public debuts, fueling optimism. Even quieter entries like CoreWeave are showing solid long-term performance.
However, she warns: not every company is Figma. “Customer love, growth, and high margins matter,” she said. “Only the best-positioned companies should expect IPO success.”
Final Takeaway: VCs Are All-In on AI, But Strategy Matters
The VC world is experiencing a major shift, driven by the AI boom. While the funding surge is real, investors are approaching the market with more discipline than in past cycles.
As AI continues to shape the future of tech and business, VC firms are betting big—but not blindly.