Declining quarterly investment numbers may be an early indication of a larger trend

The Q3 2025 investment data is in, and trends of fewer deals and more dollars continue. With CrunchBase pointing to a record share of funding going to rounds larger than $100 million, SSTI continues to review the deals in PitchBook under that size to uncover trends masked by the high end of the market to uncover trends masked by the high end of the market.  

The overall volume of deals below $100 million dropped by nearly 20% from Q2 to 1,520. For comparison, the average number of quarterly deals going back to Q1 2020 is 2,824, which is 86% higher. Capital invested also took a downward turn, dropping by $2.6 billion from the prior quarter (Figure 1). While there is always some cyclical nature to VC investment, the sustained drop in deal activity is a concern for future economic growth opportunities. The downturn in dollars invested may be part of that natural cycle, but continued growth in funding totals may be difficult to sustain without an increase in deal volume. TBED organizations should consider how changes in local investment activity impact opportunities for emerging companies and assess whether programs need to be proactively adjusted to address early-stage funding gaps if market trends continue.  

Figure 1: Quarterly deal count and total dollars invested for VC investments under $100 million. 

Looking at the investment activity by deal size shows that the downturn in deal activity and funding totals is across deal sizes (Figures 2 and 3). The drop in investment totals for deals larger than $25 million may be due to the natural variation at the top end of the market, though the sharp decline in investment deals and dollars between $10 million and $25 million are a more dramatic turn and may indicate a fundamental shift in investor behavior. Notably, there were only 96 deals between $500,000 and $1 million nationally, the lowest level since Q1 2011. The persistent shift away from smaller investments below $5 million should concern policymakers and economic development professionals working to support company formation and the opportunity for new ideas to gain the traction necessary to enter the market. VCs looking to place large investments in vetted companies may also start to see warning signs of constrained deal flow as the pipeline of companies achieving milestones with their first few million dollars of funding begins to dry.

Figure 2: Quarterly total dollars invested by deal size for VC investments under $100 million. 

Figure 3: Quarterly deal count by deal size for VC investments under $100 million. 

Industry trends show a different pattern than investments as a whole and point to where the market is strongest. AI and software as a service (SaaS) take the dominant share of investment and show relative growth over the past quarter (Figures 4 and 5). Even with their dominance of investment activity, these leading sectors both dropped in deal activity and dollars compared to the previous quarter. There are other industry verticals with real and relative quarterly growth, though the variation is likely inconsequential.

Figure 4: Quarterly total capital invested in VC deals under $100 million for top ten industry verticals. 

Figure 5: Quarterly deal count of VC deals under $100 million for top ten industry verticals. 

Median investment by industry shows an unexpected trend with life sciences leading and accelerating over the past three quarters (Figure 6). This difference reinforces SSTI’s recent analysis of biotech investment and may be linked to the nature of life science as a high-cost business. It is also an indication that there is investor interest in making sizable commitments for select opportunities, even outside of AI. These nuances suggest an opportunity for policymakers and TBED professionals to craft industry-specific strategies and differentiate programs based on the needs of specific industries.  

Figure 6: Quarterly median deal size of VC deals under $100 million for top ten industry verticals. 

Broader VC trends and record-setting deals gain the lion’s share of attention, yet the Q3 investment numbers offer few bright spots for investments less than $100 million. There are areas of relative growth, yet the overall story so far in 2025 is one of capital accumulation in a few technology areas and at the top end of the market. The decrease in deal activity raises significant concerns about the pipeline of investment opportunities and the ability of the current VC market to support innovation-driven economic growth. Are the companies you work with facing funding challenges, or do you see different patterns in your state or region? Please consider joining our community of practice and sharing your perspective with other professionals working to support innovation-driven economic growth.  

This page was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.