The first half of 2025 marked a noticeable rebound in the global venture capital landscape. Global startup funding reached approximately $91 billion in Q2 2025, which represented an 11% increase year-over-year. However, this total reflected a 20% decline compared to Q1 2025, which had set unusually high funding records.
Despite that quarter-over-quarter drop, H1 2025 became the strongest half-year for venture investment since early 2022. This growth indicated that, while investor caution still existed, more capital flowed into innovative companies than in the previous two years. A key driver of this momentum came from a concentration of funds into fewer but much larger rounds.
Acquisition activity also surged. The total value of mergers and acquisitions involving venture-backed companies exceeded $100 billion in the first half of 2025, reflecting a 155% increase compared to the same period in 2024. This surge showed that, although IPO markets remained constrained, investors and founders actively pursued strategic exits through corporate buyouts.
2. Regional Highlights: North America Leads, Europe and Latin America Shift
North America remained the epicenter of global venture activity. U.S. and Canadian startups captured the largest share of capital, supported by a wave of large-scale deals in the artificial intelligence sector. Many of the largest funding rounds globally in H1 2025 went to U.S.-based AI companies, which attracted significant investor attention due to rapid adoption and revenue growth.
In the United States specifically, startup funding grew by over 75% year-over-year in the first half of 2025, positioning the year to potentially become the second strongest year in U.S. venture history. The market concentrated on fewer deals but funneled larger amounts into companies that could show both rapid scaling potential and clear monetization strategies.
Europe witnessed a notable power shift. For the first time in over a decade, Germany surpassed the United Kingdom as the leading European venture market. This change reflected Germany’s ability to attract large-scale funding in industrial technology, mobility solutions, and green energy startups.
Latin America also saw a reshuffling. Mexico emerged as the region’s leading destination for venture capital, overtaking Brazil for the first time since 2012. This shift occurred because Mexican startups in fintech, logistics, and retail technology gained significant traction and secured major late-stage rounds.
3. Sector Breakdown: AI’s Unrelenting Dominance
Artificial intelligence dominated the funding landscape across every major region. AI startups accounted for more than half of all global venture funding in the first half of 2025 and captured nearly two-thirds of funding in the United States.
Within AI, Generative AI led the charge. Generative AI companies secured $49.2 billion in the first six months of 2025, which exceeded the entire funding total for 2024 in just half the time. This surge more than doubled the 2023 total and represented one of the fastest funding expansions for any technology category in history.
The size of AI deals also grew dramatically. The average funding round for a generative AI startup reached $1.5 billion, triple the average from the previous year. Investors pursued these massive rounds because they saw near-term opportunities for commercialization, especially in enterprise automation, creative tools, and AI-powered infrastructure.
4. Funding Stage Trends: Mega-Rounds Surge, Early-Stage Slows
The mid-2025 funding recovery did not benefit every stage equally. Late-stage deals dominated the investment landscape. Late-stage funding totaled $99.3 billion in the first half of 2025, representing a 194% increase compared to the same period in 2024 and a 45% increase compared to the second half of 2024. This growth highlighted investor confidence in scaling companies with proven market traction.
In contrast, seed and early-stage funding suffered declines. Seed funding dropped 32% year-over-year to $2.9 billion, while early-stage funding fell 24% year-over-year. Investors grew more selective at these stages, requiring stronger customer adoption metrics and clearer paths to revenue before committing capital.
The combination of robust late-stage activity and softer early-stage funding created a gap in the startup pipeline. While mature companies had access to capital to scale, younger startups faced more pressure to prove viability before raising follow-on rounds.
5. Regional Exceptions: MENA’s Unique Growth Story
The Middle East and North Africa region stood out as an exception to the global funding pattern. While many emerging markets saw deal volumes shrink, the MENA region recorded both funding and deal growth. Startups in the region secured over $1 billion across more than 300 deals in the first half of 2025.
This growth came from a mix of fintech, logistics, renewable energy, and AI-powered platforms. Government-backed innovation funds, combined with a rapidly expanding regional consumer market, encouraged both domestic and international investors to commit more capital.
6. Sector-Specific Highlights: Biotech and Digital Health Diverge
Not all technology sectors experienced the same momentum as AI. Biotech funding declined sharply in Q2 2025. First financings in biotech fell from $2.6 billion in Q1 to just $900 million in Q2, marking the lowest total in more than a year. Overall, biotech venture investment dropped from $7 billion in Q1 to $4.8 billion in Q2. Investors cited long development cycles, regulatory hurdles, and reduced appetite for high-risk life sciences plays as reasons for the slowdown.
Digital health funding also declined year-over-year, but AI played a transformative role within the sector. U.S. digital health startups raised $7.5 billion in H1 2025, down 28% compared to the previous year. However, AI-focused health ventures captured nearly two-thirds of that total, indicating that investors still backed companies combining healthcare expertise with advanced machine learning capabilities.
7. Market Sentiment: Optimism Mixed with Caution
Despite signs of recovery, investor sentiment remained cautious. Volatility in public markets, geopolitical uncertainty, and fluctuating interest rates kept many venture funds conservative in their deployment pace. Investors concentrated on fewer deals, often reserving capital for portfolio companies rather than taking new risks.
Only 11% of startups funded between 2020 and mid-2025 progressed to Series A rounds, and just 2.8% of the 2024 cohort managed that milestone. This statistic illustrated the intense selectivity in the current market and highlighted how even well-regarded startups struggled to secure follow-on investment.
Many founders responded by pivoting their business models toward AI-related offerings to tap into investor demand. Others sought alternative funding options such as revenue-based financing, strategic corporate investments, or smaller bridge rounds.
8. Cost Efficiency Becomes a Competitive Advantage
Founders placed greater emphasis on operational efficiency in 2025. Startups reduced headcount, restructured teams, and integrated AI tools into workflows to increase productivity without adding significant costs. This leaner operating model helped companies extend their runway and appeal to investors who valued profitability potential as much as growth.
Investors rewarded startups that demonstrated an ability to scale with limited resources. Capital efficiency became a key talking point in funding negotiations, and companies that could show consistent performance with controlled spending often secured better valuations.
9. Exit Activity: IPO Markets Stay Quiet, M&A Activity Surges
Public listings remained rare due to market volatility and investor caution. Instead, mergers and acquisitions became the preferred exit route for many startups. The value of venture-backed M&A transactions in H1 2025 exceeded $100 billion, representing a 155% increase compared to the previous year.
Larger technology companies actively acquired startups to accelerate product development and enter new markets, particularly in AI, fintech, and logistics. For founders, strategic acquisition offered a faster and less risky path to returns compared to waiting for favorable IPO conditions.
10. Looking Ahead: Sustaining Momentum Beyond 2025
The recovery in H1 2025 demonstrated that venture capital can rebound quickly when sectors like AI capture investor imagination. However, this growth remains uneven. The heavy concentration of capital into AI raises concerns about overvaluation and sector dependency.
For the recovery to sustain, funding must diversify into other industries such as climate tech, advanced manufacturing, and sustainable infrastructure. Regional ecosystems outside of North America will also need to attract consistent follow-on capital to maintain competitiveness.
Startups that combine innovation with disciplined operations will hold the strongest position. Those that secure clear product-market fit, demonstrate sustainable growth metrics, and manage capital wisely will have an advantage in the evolving funding environment.
Summary of Key H1 2025 Funding Trends
| Indicator | Status in H1 2025 |
|---|---|
| Global VC funding | $91 billion in Q2; strongest half since early 2022 |
| U.S. funding | Up 75% year-over-year; second-strongest half-year ever |
| AI funding share | 53% globally; 64% in U.S.; Generative AI exceeded 2024 total |
| Late-stage funding | $99.3 billion; up 194% YoY |
| Seed/early-stage funding | Down 32% (seed) and 24% (early-stage) |
| Biotech funding | Dropped from $7B to $4.8B quarter-over-quarter |
| Digital health (AI share) | AI captured 63% of $7.5B total |
| M&A activity | $100B+ in deals; up 155% YoY |
| Regional standouts | Germany, Mexico, MENA |
| Investor sentiment | Selective; focus on capital efficiency |
Also Read – Why 90% of Startups Should Never Take VC Money