VC data highlights what types of deals are slowing early-stage investment activity
Long concentrated geographically, venture capital also is growing more concentrated in a small number of larger deals, as SSTI has reported in recent Digest issues. In fact, deals under $100 million—not a small figure in itself—have fallen by 71% according to SSTI’s analysis of PitchBook data. Even more troubling is evidence showing deals under $100 million are moving to later-stage investment and away from early-stage companies. The trend, SSTI believes, should be of concern for nonprofit venture development organizations as well as TBED policy makers and regional stakeholders working to keep their local economies competitive through innovation-driven entrepreneurship.
This shift in private capital market behavior may have negative impacts on company survival rates, downstream economic growth opportunities, and the long-term competitiveness of U.S. industry.
Total investment included in Pitchbook data has increased by over $2.5 billion since 2023 (Figure 1). Yet as stated above, deals under $100 million have decreased in number by 71%. The diverging trends indicate a strong VC market, but investors are getting there through a smaller number of larger deals.
There are multiple possible scenarios driving these results. The first is that there are simply fewer companies attempting to raise capital, although we do not have data on the number of companies seeking funding, and reduced startup activity is unlikely to fully account for the drop in deals. The second, and likely more significant factor, is that private investors are becoming more selective and putting more resources into companies with strong signals of delivering high financial returns.
Figure 1: VC deal count and investment totals by quarter, 2023-2025
Examining deal types more closely, SSTI was able to hypothesize how companies may be impacted, depending on their fundraising strategy and mix of accessible investors. Figures 2 and 3 show a decline in the number and percentage of the earliest deal types (grants, angel, accelerator, seed) that help companies get off the ground. In combination, the data shows a shrinking pool of early-stage funding being deployed. Companies intending to rely on federal, foundation and state grants to develop core technologies and business models before approaching equity investors may be particularly challenged.
The number of early and late-stage VC deals has mixed results over the past two quarters, though the share of overall deal activity and dollars invested is increasing. The bright spot is that companies able to generate investor interest at the seed stage and later rounds—if they can survive in the shrinking pool of earliest stage funding, may find themselves well-funded. It is also notable that for all the volatility in VC funding, angel deals, never significant in size or share compared to other deal types, are essentially flat, as seen in Figures 2 and 3.
Figure 2: Count of quarterly VC deals by type, 2023-2025
Figure 3: Distribution of quarterly VC deals by type, 2023-2025
The decline in early-stage deals may increase demand for TBED resources as startups seek ways to close funding gaps. This need, however, may be challenging to meet if the decline in grants and accelerator deals is related to decreased funding for certain TBED programs. Programs structured as equity or other return-based mechanisms may experience increased interest and find a strain is created on resources as companies initially targeting grants and accelerators turn to other options.
The higher totals in later-stage VC investments are driven by an overall increase in median deal size, not just more very large deals (Figure 4). The median deal size for aggregate VC deal types has increased from less than $760,000 in the first quarter of 2023 to $3.5 million in mid-2025. Much of the total increase stems from significantly larger median investments in early and late-stage VC deals.
Startups may find gaps in the market if they are attempting to raise rounds between $500,000 and $2.5 million. Companies may also find a higher step up to investment from seed investments to VC funds, where they are better served by shifting their plans from a $5 million round to an $8 million round. This shift is more complicated than simply asking for additional funding since companies approaching investors with a larger ask still need to demonstrate the value and growth potential to justify the larger investment.
Figure 4: Quarterly VC investment totals by deal type, 2023-2025
While the differentiation between seed, early, and late VC stages is somewhat arbitrary, the combined deal and funding level data suggest that it is becoming increasingly challenging for companies to identify early sources of funding. The data also suggests that companies able to secure initial funding and break through may find investors with an increased appetite for larger investments, though this may partly be influenced by investor enthusiasm for large AI investments. What is unclear from the available data is whether companies with more modest total funding requirements can raise the necessary capital or if they are being locked out as investors are focused on larger deals.
The VC market is complex, and it is important to consider that the dollars driving different deal types are not pulled from a common source. The decline in grants may be a result of pandemic-era programs winding down, the freeze in federal R&D distributions over the past nine months, or other changes that influence public and philanthropic funding. The overall strong VC market, driven by the high end, likely results from large amounts of capital from institutional investors. So rather than the shift in overall activity toward later-stage deals coming at the expense of early-stage investment, we are likely seeing two diverging trends from independent resource pools. The net impact on companies, however, is the same and could leave otherwise promising companies unable to secure early-stage funding.
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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.