Build or Die
Why Profitability and Proof Are the New Pitch Deck in 2025
Check out the audio discussion about this article if you prefer learning by listening.
🧠 TL;DR: The venture market in 2025 is split down the middle. AI giants and late-stage startups are swimming in capital, while early-stage founders face the toughest funding environment in years.
Investors want traction, profitability, and proof - vision alone won’t cut it.
To raise in this climate, founders must choose the right sector, show efficient growth, and build for sustainability from day one.
Success increasingly depends on proven traction, disciplined unit economics, and strategic sector selection rather than innovative ideas alone.
The Macro Fundraising Environment: A Market in Transition
The venture capital ecosystem has reached a pivotal inflection point as we progress through 2025.
Global venture funding in Q1 clocked in at $113 billion - the strongest quarter since Q2 2022 - but a staggering one-third of the total was thanks to a single round: OpenAI's $40 billion raise.
This statistic encapsulates the current reality: aggregate funding numbers mask a deeply uneven distribution of capital.
The market demonstrates what industry observers are calling "K-shaped recovery" dynamics.
Large, established startups are landing outsized deals and more money, while the youngest companies struggle with fewer investment dollars.
This divergence has created distinct funding tiers that founders must understand to position themselves effectively.
Source : Ram Nutakki, Medium, May 2025
Interest Rates and Capital Accessibility
Despite expectations for rate cuts, the Federal Reserve has maintained a cautious stance on monetary policy.
The US Central Bank interest rate policy is put on hold until there is evidence that inflation is getting back to its 2% target.
This means that venture capital fundraising is likely to remain challenging, as institutional VCs are less prone to risks in a high-rate environment.
The sustained high-rate environment has fundamentally altered LP behaviour and, consequently, VC fund dynamics.
Many LPs may get cautious about committing to new funds, given a lot of undisciplined behaviour in the previous years.
This caution filters down to portfolio companies, creating a more stringent funding environment where only the most compelling opportunities secure investment.
The Great Funding Divide: Late-Stage Versus Early-Stage
The most striking characteristic of 2025's funding landscape is the pronounced bifurcation between funding stages.
The increase was driven by late-stage investment, which gained more than 30% QoQ and 147% YoY to $81 billion.
Global early-stage investment, however, fell to $24 billion - the lowest level in at least five quarters.
This disparity reflects investor risk appetite in uncertain economic times.
Late-stage companies offer proven business models, established revenue streams, and clearer paths to profitability - attributes that align with current investor preferences for de-risked opportunities.
Early-Stage Funding Challenges
For seed and Series A companies, the environment has become increasingly challenging.
Seed funding also fell 14% YoY to $7.2 billion.
This contraction isn't merely cyclical; it represents a fundamental shift in investor behaviour toward proven rather than potential value.
The implications for early-stage founders are profound.
Traditional metrics that once attracted seed investment - such as innovative technology or large addressable markets - are insufficient in the current environment.
Investors now demand evidence of product-market fit, revenue traction, and efficient unit economics even at the earliest stages.
Software Sectors: Winners and Losers
The software landscape presents a complex picture of sectoral preference and decline, with clear winners and losers emerging as we move through 2025.
The AI Dominance
Artificial intelligence continues to dominate venture investment, though with important nuances.
AI was the top sector for venture funding in Q1, with nearly $60 billion invested (of course, two-thirds of that was just for OpenAI).
The concentration of AI funding in mega-rounds to established players like OpenAI illustrates the sector's maturation - while overall AI investment remains high, opportunities for new entrants are becoming more selective.
Global VC funding for AI startups reached $131.5 billion in 2024, which is one-third of all venture capital investment that year, and a remarkable 52% jump from the previous year. However, this growth masks increasing investor sophistication.
AI companies now face higher bars for demonstrating real-world applications, sustainable competitive advantages, and clear monetization paths.
Enterprise Software and SaaS: A Sector Under Pressure
Traditional SaaS and enterprise software companies face significant headwinds.
So far this year, SaaS and enterprise software companies have raised $4.7 billion in seed- through growth-stage financing, per Crunchbase data.
That puts 2024 on track to come in far below last year's $17.4 billion annual tally - which was itself the lowest total in years.
This decline reflects multiple factors.
Public market performance of SaaS companies has deteriorated, with The Bessemer Cloud Index, which includes many of the most prominent public SaaS businesses, has sharply underperformed the Nasdaq and S&P 500 and is now in negative territory for 2024.
Public market valuations directly influence private market appetite, creating a feedback loop that constrains funding availability.
The sector's challenges stem from maturing markets, increased competition, and customer scrutiny of software spending.
Enterprise buyers have become more disciplined, extending sales cycles and demanding stronger ROI justification - trends that directly impact startup traction metrics.
Cybersecurity: A Bright Spot in Software
Despite broader software sector challenges, cybersecurity remains an attractive investment category.
Gartner estimates global IT spending grew at an 8% rate in 2024, reaching USD 5.1 trillion, with 80% of CIOs increasing their cybersecurity budgets.
The sector benefits from non-discretionary spending drivers, as organizations cannot compromise on security regardless of economic conditions.
Cybersecurity's appeal extends beyond defensive necessity.
Gartner predicts that by 2025, nearly 45% of organisations will experience a supply chain cyberattack, which is three times the number from 2021.
This escalating threat landscape creates sustainable demand for innovative security solutions.
Declining Software Categories
Several software categories face structural challenges that extend beyond cyclical market conditions.
Traditional CRM, basic productivity software, and generic SaaS platforms struggle to differentiate in crowded markets.
AI-powered support tools will handle 40% of all IT service requests by 2025. 60% of companies are investing in virtual support assistants.
The automation of routine IT functions through AI eliminates demand for certain software categories.
Companies building solutions for problems that AI can solve more efficiently face existential challenges rather than merely competitive ones.
Hardware and Deep Tech: Rising Interest
While software faces headwinds, hardware and deep tech sectors show renewed investor interest.
The trend of on-shoring high-tech manufacturing is gaining momentum.
Countries are striving to reduce their reliance on global supply chains, creating new investment opportunities domestically.
Geopolitical tensions and supply chain vulnerabilities have elevated hardware and manufacturing technologies to strategic importance.
While these ventures often require more capital than traditional software startups, they are crucial for national security and economic resilience.
Defense Technology: A New Frontier
Defense technology represents an emerging category attracting significant venture interest.
As cyber threats are becoming more complex, startups are developing defence technologies like cybersecurity and advanced weaponry to attract VC investment.
The demand in defence will give startups a competitive advantage, and investors will seek startups that have built partnerships with defence contractors and government agencies.
The sector benefits from sustained government spending, long-term contracts, and strategic national priorities that transcend economic cycles.
For founders with relevant technology or domain expertise, defence tech offers opportunities for venture-scale businesses with government customer validation.
The Biotech Exception
Biotechnology continues to attract substantial investment despite broader market challenges.
A new year means a new Fierce Biotech Fundraising Tracker to record the significant amounts of venture capital being directed into the industry.
The sector's resilience stems from demographic trends, scientific advances, and the essential nature of healthcare innovation.
Recent biotech fundings demonstrate investor appetite for transformative medical technologies.
Companies developing next-generation therapeutics, diagnostic tools, and medical devices continue to secure large funding rounds, often in the $50-200 million range for later-stage companies.
Geographic Funding Patterns
Geographic distribution of venture funding reveals important regional dynamics.
The raise also bolstered North America's venture numbers significantly, while investment in Asia and Europe declined or plateaued.
North American dominance in AI and technology infrastructure creates concentration effects that founders must consider when building companies.
Europe's venture funding plateaued at $12.6 billion in Q1 2025 - flat quarter over quarter and year over year.
European founders face additional challenges accessing growth capital, potentially requiring earlier consideration of US market expansion or investor relationships.
Valuation Dynamics and Investor Expectations
The current environment has reset valuation expectations across all stages.
Investors are very selective.
They aren't willing to repeat the mistakes of 2021-2022 and deploy capital on a hype basis only.
They want sustainable and scalable business models and strong financials - proof that your business will be profitable and bring them returns in the future.
This selectivity manifests in several ways.
Due diligence processes have lengthened and intensified.
Reference calls, financial audits, and market validation requirements have become more rigorous.
Investors increasingly demand proof of concept beyond early traction metrics.
The Profitability Imperative
The path to profitability has become a central evaluation criterion across all funding stages.
The total median spend across all departments is 95% of Annual Recurring Revenue (ARR) for bootstrapped companies while equity-backed are spending 107% of ARR.
This data suggests that venture-backed companies must demonstrate discipline approaching bootstrapped efficiency levels.
Investors now favour companies that can articulate clear paths to sustainable unit economics rather than growth-at-all-costs strategies.
This shift requires founders to balance growth investments with operational efficiency from earlier stages.
The Funding Process: What's Changed
The mechanics of fundraising have evolved significantly.
AI-driven investment platforms are changing who gets funded.
Data-driven decision-making is replacing gut instinct.
If your numbers don't hold up, good luck convincing anyone to write a cheque.
Technology platforms now pre-screen opportunities based on quantitative metrics before human evaluation.
This development favours companies with strong data stories but may disadvantage those with compelling qualitative narratives that don't translate to immediate metrics.
Due Diligence Intensification
Investor due diligence has become more comprehensive and skeptical. Investors are scrutinising profitability, sustainability, and transparency like never before.
This enhanced scrutiny extends to team composition, market positioning, competitive analysis, and financial projections.
Companies must prepare for deeper technical due diligence, customer reference calls, and competitive benchmarking.
The informal relationship-driven investment processes of previous years have given way to institutionalised evaluation frameworks.
Exit Environment and Strategic Implications
The exit environment significantly influences venture investment patterns.
After several years of sluggish IPO activity and an unfavourable exit environment, there is a cautious optimism that things will pick up in 2025.
Improved IPO conditions would enhance investor confidence and potentially increase risk appetite.
There were 550 M&A deals involving venture-backed startups in the first quarter of 2025 - a 26% increase compared to Q1 last year.
Increased M&A activity provides alternative exit paths, particularly valuable for companies that may not achieve IPO scale.
Strategic Acquirer Behaviour
Corporate acquirers have become more active, particularly in technology categories aligned with digital transformation priorities.
The most recent quarter included Google's planned purchase of cybersecurity unicorn Wiz, a deal that, if finalised, will mark the largest acquisition for a private company ever with a price tag of $32 billion.
Large technology companies continue acquiring innovative capabilities, creating opportunities for startups building complementary technologies.
However, acquirers have become more selective, focusing on companies with proven technology integration potential rather than speculative capabilities.
Implications for Founders: Strategic Positioning
The current environment requires founders to adapt their fundraising strategies across multiple dimensions.
Success increasingly depends on strategic sector selection, geographic positioning, and stage-appropriate metrics demonstration.
Sector Selection Strategy
Founders should carefully evaluate sector dynamics when building companies or pivoting existing businesses.
AI-adjacent applications, cybersecurity, defence technology, and biotech offer the most favourable funding environments.
Traditional SaaS and generic enterprise software face structural challenges requiring exceptional differentiation.
Geographic Considerations
While North American markets offer the deepest venture capital pools, competition for investment has intensified correspondingly.
European and other international founders should consider early US market entry strategies to access growth capital effectively.
Timeline and Runway Management
Extended fundraising timelines require more conservative cash management.
Companies should plan 12-18 months of runway before initiating fundraising processes, compared to historical 6-12 month windows.
This extended timeline reflects both increased due diligence requirements and market selectivity.
Looking Ahead: The Remainder of 2025
Several factors will influence fundraising conditions through year-end.
Federal Reserve monetary policy decisions could shift investor risk appetite significantly.
Continued AI innovation and adoption may expand funding opportunities for related technologies while further constraining traditional software investment.
Bowles believes that entrepreneurs committed to building companies on the foundation of fundamentals like sales, revenue, and profitability, will continue to have success in fundraising.
This perspective emphasises the enduring importance of business fundamentals regardless of market conditions.
The second half of 2025 will likely see continued stratification between companies with strong traction metrics and those still seeking product-market fit.
Founders who can demonstrate revenue growth, customer retention, and efficient unit economics will find capital availability, while those without such metrics face increasingly difficult funding environments.
Conclusion: Navigating the New Reality
The startup fundraising landscape entering the second half of 2025 demands strategic adaptation from founders.
Success requires sector selection aligned with investor priorities, geographic positioning for capital access, and operational discipline that demonstrates sustainable business models.
While aggregate funding levels remain substantial, the distribution of capital has become highly concentrated among proven companies and strategic sectors.
Early-stage founders must achieve higher bars for traction and efficiency, while later-stage companies benefit from improved capital availability for proven business models.
The environment rewards companies building solutions to real market problems with demonstrable customer value and sustainable competitive advantages.
Founders who embrace these requirements and adapt their strategies accordingly will find opportunities for venture-scale businesses despite challenging overall conditions.
Source : Liveplan
References
Crunchbase. "These 11 Charts Show The State Of Startup Investing At The Beginning Of 2025." April 18, 2025. https://news.crunchbase.com/venture/startup-investment-charts-q1-2025/
Waveup. "Venture capital trends 2025: What's changing & why it matters." March 5, 2025. https://waveup.com/blog/venture-capital-trends-2025/
GoingVC. "Top Venture Capital Trends to Watch For in 2025." https://www.goingvc.com/post/top-venture-capital-trends-to-watch-for-in-2025
Deloitte. "2025 Trends in Venture Capital." https://www.deloitte.com/us/en/services/audit-assurance/articles/trends-in-venture-capital.html
Fierce Biotech. "Fierce Biotech Fundraising Tracker 2025." July 10, 2025. https://www.fiercebiotech.com/biotech/fierce-biotech-fundraising-tracker-25
Center for Entrepreneurial Innovation. "13 Startup Funding Trends to Watch in 2025." February 25, 2025. https://www.ceigateway.com/funding-trends-to-watch-2025/
Bain & Company. "Global Venture Capital Trends: The Latest Industry Report." https://www.bain.com/insights/global-venture-capital-outlook-latest-trends-snap-chart/
Allvue Systems. "Venture Capital Trends 2025: Outlook & Insights." March 10, 2025. https://www.allvuesystems.com/resources/top-trends-in-venture-capital/
TechCrunch. "Here are the 24 US AI startups that have raised $100M or more in 2025." June 18, 2025. https://techcrunch.com/2025/06/18/here-are-the-24-us-ai-startups-that-have-raised-100m-or-more-in-2025/
HubSpot. "Top VC Fundraising Trends of 2024." https://www.hubspot.com/startups/vc-fundraising-trends
Deloitte Insights. "2025 technology industry outlook." June 2025. https://www.deloitte.com/us/en/insights/industry/technology/technology-media-telecom-outlooks/technology-industry-outlook.html
Crunchbase. "Tech Layoffs: US Companies With Job Cuts In 2024 And 2025." July 9, 2025. https://news.crunchbase.com/startups/tech-layoffs/
SentinelOne. "10 Cyber Security Trends For 2025." May 15, 2025. https://www.sentinelone.com/cybersecurity-101/cybersecurity/cyber-security-trends/
✍️ Why I Wrote This
I’m endlessly fascinated by startups and the emotional rollercoaster that begins the moment a founder has that epiphany - the “aha!” moment 💡 where a problem grips them so tightly they feel compelled to solve it.
As a recovering Founder and Co-Founder myself - and someone who now supports startup founders and leadership teams across the globe 🌍 - I’ve seen something intriguing: the way a person approaches decision-making, risk, and intuition often varies dramatically depending on their age, experience, or both.
As the reality of fundraising bites in 2025, I thought this was very timely to help Founders get real and understand what investors are looking now and for the future. As walking in with your eyes 👀 wide open is essential.
🚀 Need a sounding board for your raise?
DM me or comment “Fundraising” and I’ll send over a checklist I use with early-stage founders in 2025.
💬 Your Turn: Are you seeing these trends play out in your fundraising journey?
Drop a comment - I’d love to hear how founders are navigating the second half of 2025.
📣 Know a founder who's raising right now?
Tag them - or forward this - they’ll want to read this before sending another deck.
🎧 Let’s Stay Connected
If you enjoyed this piece, please subscribe here on SubStack and consider following my podcast, The G&T Sessions - where I dive deeper into the minds of remarkable founders, creators, and change makers.
🎙 Listen + subscribe → https://www.linktr.ee/thegtsessions
(For deeper dives into the psychology of founders.)
You can also follow me on X → https://www.x.com/andrewjturner
And now it’s July 2025 already 🤬 , I wanted to let you all know I am working on a new proposition that I will be launching before September - no holidays for the wicked 😜.
I’m building something that takes all of this and more….and turns it into a framework founders can use in real time. Want to be part of the next cohort starting soon?
Ciao for now 👋
– Andrew
Thanks for reading The G&T Sessions! Subscribe for free to receive new posts and support my work.