On paper, the 2025 forecast for venture capital was impressive.
The global deal value has reached $512 billion. This is the second highest total ever recorded. AI startups have raised record amounts and Andreessen Horowitz recently closed a fund worth $15 billion.
There was a constant stream of headlines and optimism.
Underneath all of that, there is a fundamental problem in the system.
The success of venture capital is dependent on the exits – IPOs, acquisitions or other transactions that convert paper values into money for limited partners.
Currently, the cash does not flow back.
Investors have seen their returns fall by almost $200 billion since 2022. Fundraising for new VCs has also dropped to the lowest levels in a decade.
Over 1,500 companies with a collective value of around $6 trillion do not have a realistic way to convert these marks into cash.
Here’s what it looks like to have a liquidity problem when there are strong incentives for the industry not to refer to one.
Most companies have effectively shut down the exit market. The model was working as intended until 2021 when 311 firms backed by venture capital went public. Cash flowed like crazy and it worked perfectly. Just 38 firms were listed in 2022.
By 2024 the figure will be 72.
Only 62 of the 1,500 companies that waited in line for an IPO last year completed it, despite modest gains.
It would take 49 years at the current rate to clear the backlog of US Venture-backed unicorns.
It isn’t much better to buy than acquire.
Major technology buyers who historically have absorbed smaller startup companies spent many years being scrutinized by antitrust authorities, which has made large transactions slower and less sure.
Buyers who are still interested in buying are disciplined about their prices: They do not pay 2021 values for assets valued at 2025.
Companies wait, operating sometimes profitable but their value remains locked and inaccessible.
DPI or Distributions to Paid-In Capital is the best way to measure strain. It measures how much cash an investor has received in relation to their initial investment.
The money returned either came or did not.
These data are shocking. More than 3/5 of all 2019 venture funds had failed to return a dollar in the first five years.
By 2024, the median fund of that vintage returned only 22 cents on every dollar. This compares to 47 cents in 2016 funds.
The performance of each successive tranche is worse than that of the previous one.
In the private market, the distributions dropped to 6% in the first six months of 2025. This is less than the average of 14% over the past ten years.
Consequences are immediate and compound. The cash that pension funds, family offices and endowments planned to receive is not being received.
They cannot raise new funds without it. This is why US venture funding fell last year to the lowest level in US history, and new fund closures were only 30% of what they had been at their peak.
6 trillion dollars on paper but very little cash
Crunchbase reports that more than 1,500 companies have a value of $1 billion or higher, and collectively they are worth $6 trillion.
More than 60% of unicorns haven’t raised money at an disclosed valuation for more than three year. Over half of US unicorns are in the portfolios of investors for more than nine years.
Many of these businesses generate real revenue. It’s just that investors paid 15-20 times the revenue of fast-growing software firms when they last appraised them.
Public markets value similar businesses between 3 and 5 times their revenue. In 2025, a company which raised $5 billion at an initial valuation cannot go public with a $2 billion valuation without causing losses to its recent investors. It does not.
Every quarterly letter refers to a portfolio which is significantly more valuable that any actual buyer could confirm.
All that is hidden behind the AI numbers
AI is a valid counterargument, but only up to a certain point. AI-related deals will account for 65% of the total US venture capital deal value by 2025. OpenAI has raised over $40 billion from a single investment round.
The combined value of seven private technology companies that are now valued at $1.3 trillion is a group.
The majority of venture capital dollars went to just 0.05 percent of the deals last year. Over 42% of LP commitments were captured by the top 10 funds.
Andreessen Horowitz raised $15 billion, which is 18% of the total amount invested in US ventures over the previous year.
AI is a boom that produces real value in a very narrow area at the top of the market. The rest of the portfolio, however, waits for absorbing mechanisms in a market without any obvious ones.
It has taken a median of 11 years for a firm valued over $500,000,000 to become an IPO, which is the longest time ever recorded.
What should investors understand?
Venture capital is going through a major transformation. However, it won’t happen overnight.
The AI-based funds that are the most successful will be taken public, allowing them to create substantial returns for those who invested early.
The aggregate picture is what is or should be in question.
It is likely that the thousands of companies in portfolios still valued at the 2021 level, as well as the hundreds of funds with maturities ranging from 2018 to 2022, will look quite different when cash reality finally catches up to the paperwork.
This adjustment can be seen in DPI figures, secondary market deals, where portfolios are trading at between 20 and 40 cents per dollar, compared to the reported value, through 2024. It is also evident in a fundraising slump that will not end until large-scale exits begin.
It is now underway.
The data is still not fully absorbed by many who have money invested in the system.
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