The venture capital ecosystem in the second quarter of 2025 was marked by cautious optimism amid a nuanced shift in discount dynamics and sector priorities, according to Carta’s up-to-date State of Private Markets report.
U.S. startups raised $20.2 billion across 1,159 funding rounds, reflecting a 10% decline in discount volume from the first quarter but only a modest 4% dip in total capital raised. This divergence, observed since mid-2022, underscores an investor focus on quality over quantity, with valuations steadily rising across the board.
Median pre-money valuations in the seed round climbed to $17.2 million, while Series A and subsequent later rounds saw increases of 4.2% to 15%, signaling sustained investor competition for startups demonstrating strong fundamentals. Meanwhile, founders benefited from reduced dilution, allowing them to retain more equity in funding rounds, though down rounds remain elevated at 19.2%, indicative of ongoing market caution following the 2022 valuation corrections.
In discount counts, the second quarter witnessed a 30% drop from the fourth quarter of 2024, consistent with historical seasonality where year-end quarters outpace early-year activity. The seed stage experienced the steepest decline in deals, down 25% year over year, compelling startups to extend their runway significantly. The median time between Series A and B rounds reached a record 2.9 years.
Geographic trends highlight California’s predominance, capturing nearly half of U.S. venture capital. Still, the Northeast, propelled by Boston’s biotech and health tech sectors, gained traction with a 27% share. The South’s rising relevance, especially in Texas and Florida, contrasts with the Midwest’s lagging position, reflecting diversification of venture hotspots beyond the traditional coastal hubs.
Sector-specific data from Carta and corroborating reports reveal a pronounced investor appetite for AI and biotech. AI startups commanded premium valuations — median seed rounds of $25 million — with biotech flourishing particularly in Boston and Los Angeles, where late-stage funding surged. Los Angeles startups raised $2.5 billion in the second quarter, 40% at Series C or later.
Complementary analyses from Crunchbase and KPMG emphasize AI’s dominance in global venture funding, with $40 billion invested in the sector during the second quarter, representing a significant portion of the $91 billion global venture capital pie. Despite declining from a peak in the first quarter, the first half of 2025 exhibited a 32% increase in funding year over year, underscoring sustained investor confidence in transformative technologies.
Financial technology rebounded robustly in the second quarter, reaching $11 billion raised globally across 390 rounds, according to S&P Global. This is the highest since the third quarter of 2022. It was accompanied by a surge in mega-rounds — investments exceeding $100 million — with 23 recorded deals, reflecting renewed investor enthusiasm particularly for growth and mature-stage fintech enterprises. Meanwhile, hardware and software-as-a-service (SaaS) startups demonstrated significant momentum. Carta reported a 91.2% increase in SaaS funding over two years, with major contributions from the Bay Area where San Francisco startups alone raised $36.7 billion in the second quarter.
Underlying these funding trends is a strategic pivot toward capital-intensive hard tech platforms, including defense, space, industrial AI and energy infrastructure. Research by F1GMAT found that four of the leading 10 global VC rounds in the second quarter involved defense or space tech companies, exemplified by Anduril’s $2.5 billion raise. These sectors attracted over $9 billion collectively, signaling a venture capital recalibration toward scalable physical systems and infrastructure innovation, alongside traditional software and biotech sectors.
Overall, the second quarter reflects selective stabilization. While fewer deals are closing, elevated valuations and founder-friendly terms indicate persistent investor confidence in cutting-edge technologies. However, startups face longer fundraising cycles and must emphasize operational efficiency and differentiation to secure capital amid increasing selectivity. Industry data from multiple sources portray a venture capital environment adapting to evolving economic realities, with significant opportunities for those positioned at the forefront of AI advancements, biotech innovation and capital-intensive hard tech sectors poised for scalable growth.
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