Editor’s note: This is Part 1 of our 2025 venture investing preview. Stay tuned tomorrow for Part 2.

While the venture market in 2024 continued to wobble well below its pandemic-induced highs, venture capitalists and those close to the industry are cautiously optimistic political shifts and AI’s overwhelming influence will power the private market to a solid — or even great — year in 2025.

Although AI continued to fuel the VC market as companies such as OpenAI, xAI and Anthropic raised massive amounts of cash, overall venture dollars remained stagnant-to-below last year’s levels. At the same time, both the M&A and IPO markets remained slow in 2024, a crippling double whammy to VCs trying to keep their limited partners happy with investment returns.

However, after economic and geopolitical issues have conspired to quiet the market in recent years, many VCs we spoke with now feel more upbeat that the investing environment could see an upswing in 2025. Their optimism stems from the promise of less government regulation and lower inflation, coupled with more anticipated applications of AI technology.

It’s all about returns

Of course, the top issue on the minds of the venture investment community is three little letters: DPI, otherwise known as distributed to paid-in capital, or the capital paid to funds’ LPs after IPOs or other exits by those funds’ portfolio companies.

“Let’s face it, the name of the game right now is DPI,” said Yash Patel, general partner at investment firm Titanium Ventures. “That’s what we’re all focused on.”

However, with few startups exiting, such payouts have been hard to come by for PE and VC firms alike.

“I don’t think it’s been written about enough how Silicon Valley has been with financing,” said Louis Lehot, a partner in law firm Foley & Lardner’s private equity and venture capital, M&A and transactions practices. “It’s been impossible for private equity and venture capital to get DPI.”

Firms have relied on continuation funds and the secondary market to offer liquidity to their LPs, but those tools can only do so much when compared to large acquisitions or public market offerings.

That in turn has made it hard for some firms — especially emerging managers — to raise money for new funds. Many VCs describe the current environment as the worst they have seen for fundraising in a long time.

Liquidity has always been king in the market — and never more so after several years of it drying up.

Return of dealmaking

However, many think the dryspell might be about to ease.

That’s mainly because of the political changes in the wake of the U.S. presidential election in November.

Among investors, there is a lot of optimism that the federal government change will jump-start an M&A market that slowed through the past few years — per Crunchbase data — a sluggishness that many pinned on over-regulation.

Many VCs hope changes at the Federal Trade Commission and U.S. Department of Justice under a new administration will reverse the trend that killed big deals such as Amazon‘s proposed $1.4 billion acquisition of iRobot. A tough regulatory environment in Europe also is often blamed for killing Adobe’s deal to buy Figma for $20 billion.

The regulatory hurdles those deals tried — and failed —  to overcome likely squashed enthusiasm for many smaller startup acquisition deals from the start as companies viewed M&A transactions as prohibitively expensive and complicated.

However, now investors seem significantly more optimistic about the M&A market returning — to a point.

“We are seeing a lot more corporate and private equity interest in the market now,” said Don Butler, managing director at Thomvest Ventures. “There certainly seems to be more of a ‘risk-on’ attitude.”

The reawakening of the M&A environment could also break the IPO market out of its extended slumber, since the two sometimes go hand -in hand as companies evaluate their exit options. This year continued to be pretty boring as far as IPOs go, with only a few companies such as Astera Labs and Reddit making it to the public markets.

However, all of that comes with some important caveats. While the change in administration could bring less regulation to the market, there is still concern about how friendly the new administration — and the economy it creates — will be to both tech and M&A.

Increased tariffs — which President-elect Donald Trump has promised — could cause inflation rates to spike again, driving up interest rates. And while Trump has talked about less regulation, he has also been critical of Big Tech. His nomination of Gail Slater — a frequent critic of large technology companies — to lead the Justice Department’s antitrust efforts has likely caused some consternation in Silicon Valley.

“It may not be as rosy as people thought the day after the election,” Lehot said.

Related Crunchbase Pro list:

• Global Venture-Backed M&A

Related reading:

• Startup M&A Trends Higher As PE Leads, But Remains Sluggish Compared To Earlier Years
• These Were The Winners And Losers In A Boring Year For Startup IPOs

Illustration: Dom Guzman