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Executive Summary
Stout is pleased to present our Q3 2025 Venture Capital (“VC”) Industry Update based on the latest data available as of September 30, 2025. This newsletter is a testament to Stout’s specialized expertise on the U.S. VC industry and aims to provide you with the latest trends and key market developments along with our analysis and thought-provoking insights.
In this edition, we will dive into different aspects of the VC landscape, including a Market Overview, Deal Volume and Activity, Pricing Analysis, the FTSE VC Index, Secondary Market Activity, and Exit Activity. Each section is designed to keep you informed and up to date with the latest trends in the ever-evolving VC industry.
VC Environment in Q3 2025
- A Divergent VC Landscape: Data for Q3 2025 reflects a dynamic but challenging VC environment. Shaped by the economic uncertainty experienced earlier this year and marked by a divergence in activity, deal volumes declined but capital invested surged due to a shift toward larger, more concentrated deals.
- Inflation and Fed Rates Outlook for Late 2025: According to the U.S. Federal Reserve, inflation is expected to remain elevated throughout the rest of 2025, driven primarily by the delayed impact of tariffs. While the Fed has already begun easing, further rate cuts are anticipated by the end of the year, followed by additional reductions in 2026 as policymakers respond to persistent inflationary pressures and emerging signs of labor market weakness.
- Highlights in Exit Activity: Exit activity slowed in Q3 2025, with the Information Technology sector remaining the primary driver of transactions, as investors prioritized assets tied to long-term trends like artificial intelligence. Findings highlight a preference for established businesses in an environment where investors are more selective.
- Secondary Market Trends: The VC secondary market experienced a minor shift in Q3 2025, with deal count decreasing and transaction volume slightly increasing. Common stock continues to be the most traded share class, Enterprise Software remains the leading sector, and transactions are still mainly driven by individual buyers and sellers.
Deal Volume and Activity
VC Deal History
U.S. VC deal activity declined in Q3 2025, exhibiting a 15.0% QoQ decline in deal count. However, capital invested increased by 9.4% from Q2 to $49.5 billion.
U.S. Venture Capital History
Capital Invested in Billions of U.S. Dollars
Source: Pitchbook Data, Inc.
Deal and Volume Activity by Funding Stage
Early-Stage activity slowed in Q3, with deal count down 14.4% and invested capital falling 14.5% compared to Q2. By contrast, Late-Stage activity picked up, with capital invested rising by 44.1%. This movement is mainly attributed to some megadeals in Information Technology sector in Q3 2025 along with a general trend of the VC market toward more mature enterprises.
U.S. Venture Capital History per Stage
Capital Invested in Billions of U.S. Dollars
Source: Pitchbook Data, Inc.
Historically, Early-Stage deals have consistently outnumbered Late-Stage deals, a pattern that persisted in Q3 2025 with 1,308 Early-Stage deals compared to 120 Late-Stage transactions. Despite their smaller volume, Late-Stage deals continued to attract significant capital. Series F funding led the way in Q3 2025, securing $13.40 billion in total capital.
Pricing & Deal Characteristics Analysis
Pre- and Post-Money Valuation
Pre-money valuations experienced an upward trend in 2025 despite the declining deal count. More specifically, the total median pre-money valuation rose by 11.11% in Q3 2025 compared to the previous quarter, while the deal count declined by 14.25% during the same period.
Total Median Pre-Money Valuation
In Millions of U.S. Dollars
Source: Pitchbook Data, Inc. Based on VC transactions for which pre-money valuation was available.
By analyzing the implied post-money valuation per industry, the Information Technology sector continued to lead among the industries, undergoing notable fluctuations in 2025 due to macroeconomic conditions. In comparison with the prior quarter, the median post-money valuation of the total deals increased by 13.2% QoQ, mostly driven by a few large deals in Information Technology sector in September 2025.
Total Median Post-Money Valuation per Industry
In Millions of U.S. Dollars
Source: Pitchbook Data, Inc. Based on VC transactions for which post-money valuation was available.
Deal Size
The median deal size remained relatively stable in Q3 2025, with sector-level divergencies telling a more complex story. Information Technology median deal size remained stable, while Energy median deal size contracted more than 50%, which can be linked both to falling energy prices and regulatory headwinds in the green energy transition.
Median Deal Size per Industry
In millions of U.S. Dollars
Source: Pitchbook Data, Inc. Based on VC transactions for which deal size was available.
Valuation Step-Up
The valuation step-up (“Valuation Step-Up”) is the increase in valuation of the current financing round relative to the prior financing round and is calculated as the current VC round implied pre-money valuation divided by the prior VC round implied post-money valuation. The Valuation Step-Up serves as an indicator of market sentiment, startup performance, and investor confidence. In this section, we analyzed the historical median Valuation Step-Up by industry.
As of Q3 2025, the median Valuation Step-Up stabilized at 1.5x-2.0x, a decline from the peaks observed in 2021. This downward trend reflects a significant market correction that began in mid-2022, driven by rising interest rates and increased economic uncertainty, leading to a more normalized rate of price appreciation for VC-backed companies.
Compared to the prior quarter, the total median Valuation Step-Up in Q3 2025 remained relatively flat. The Consumer Products and Services (B2C) sector experienced the largest upward movement, with a 23.7% increase in its Valuation Step-Up, while the Materials and Resources sector saw the most significant decline, recording a 26.8% QoQ decrease.
Median Valuation Step-Up per Industry
Source: Pitchbook Data, Inc. Based on VC transactions for which Valuation Step-Up details were available.
Down Round Financing
To assess the health of the VC ecosystem, we analyzed the historical percentage of deals classified as down rounds.
Since mid-2022, the U.S. VC market has entered a period marked by a high incidence of down rounds driven by several key factors: (i) tightened capital markets resulting from broader macroeconomic challenges, prompting investors to adopt capital concentration strategies, (ii) a market correction reflecting a significant "valuation reset" following the rapid stock appreciation of 2021, and (iii) a shift toward “valuation discipline,” with a stronger emphasis on realistic valuations grounded in fundamental growth and cash flow generation.
In Q3 2025, the percentage of down rounds was 10.9% of total deals, relatively flat compared to the prior quarter despite the lower deal activity.
Total Deals and Percentage of Down Rounds
Source: Pitchbook Data, Inc. Based on VC transactions for which round details were available.
Investor Mixture
In this section, we analyzed the percentage of new investors participating in deals on a deal-by-deal basis, categorized by industry.
In September 2025, the percentage of new investors decreased by 15.2% compared to the beginning of the year, accompanied by a noticeable decline in the total number of investors. Broken down by industry, the decline was evident across all sectors, with the Information Technology industry being relatively less impacted.
The observed downward trend can be attributed to tight liquidity conditions and increased investor caution due to limited cash realizations. Additionally, the high economic and policy uncertainty, persistent inflationary pressures, and concerns about companies’ stability have fostered a “flight-to-quality” mindset among investors, leading to reduced participation in new deals.
Percentage of New Investors per Deal
Source: Pitchbook Data, Inc. Based on VC transactions for which investors details were available.
Percentage of New Investors per Deal per Industry
Source: Pitchbook Data, Inc. Based on VC transactions for which investors details were available.
Deal Contractual Rights
This section presents a breakdown of deals categorized by their respective security contractual rights. The accompanying graphs classify transactions based on key factors such as waterfall seniority and conversion rights (convertible or participating).
Notably, the peak in strong investor rights observed in deals during 2022 and 2023 coincided with the transition from the rapid private market growth of 2021 to a period of economic challenges driven by high inflation and macroeconomic headwinds. These market conditions prompted the inclusion of stronger investor protections in new deals to mitigate the increased risk. By 2025, however, as market expectations have stabilized and entry valuation levels have been moderated, there is a higher focus on standard, default VC contracts characteristics.
More specifically, in Q3 2025, deals including participating securities have decreased from 2.8% to 1.7% of the deals QoQ, while deals including senior instruments declined by 2.7% compared to prior quarter.
Deal Breakdown per Seniority
Source: Pitchbook Data, Inc. Based on VC transactions for which seniority details were available.
Deal Breakdown per Security Type
Source: Pitchbook Data, Inc. Based on VC transactions for which security type details were available.
FTSE Venture Capital Index
FTSE VC Index Performance
The FTSE VC Index serves as a benchmark for tracking the performance of VC-backed companies and trends across the ecosystem. In this section, we dive into the latest movements in the index, highlighting key shifts, emerging sectors, and the broader implications for investors. Whether you're monitoring early-stage innovation or scaling opportunities, the FTSE VC Index offers valuable insights into the pulse of the VC landscape.
The VC market has outperformed public equity indices over the long term, albeit with higher volatility and deeper troughs. Specifically, the asset class experienced significant growth starting in early 2020, reaching a peak around late 2021. However, it saw a sharp decline in early 2022, followed by a steady recovery starting in 2023, with a particularly steep rise recorded in 2025. This performance underscores the high-risk, high-reward nature of VC investments.
FTSE Venture Capital Index Performance
Source: "https://www.lseg.com/en/ftse-russell/indices/venture-capital-index" and "dscqg.com"
Correlation Matrix
| FTSE Venture Capital Index | S&P 500 | Russell 2000 Index | |
|---|---|---|---|
| FTSE Venture Capital Index | 100.0% | 83.7% | 67.5% |
| S&P 500 | 83.7% | 100.0% | 85.9% |
| Russell 2000 Index | 67.5% | 85.9% | 100.0% |
The VC market has a strong correlation with the S&P 500 over the past 13 years reflecting its sensitivity to broader macroeconomic and capital market conditions. However, the correlation is lower with the Russell 2000 Index, suggesting that the VC market has more unique drivers compared to small-cap equities. Importantly, the VC market does not move in lockstep with public markets, which provides some diversification benefits despite the relatively high correlation.
Cumulative Returns
| 1-year | 2-year | 5-year | |
|---|---|---|---|
| FTSE Venture Capital Index | 36.2% | 102.7% | 60.5% |
| S&P 500 | 16.1% | 56.0% | 98.9% |
| Russell 2000 Index | 9.3% | 36.5% | 61.6% |
The VC market is highly volatile, offering exceptional returns during strong periods, but is also associated with increased risk, reflected in both valuations and number of successful exits. Careful consideration should be given to both idiosyncratic asset properties and broader systematic factors.
Secondary Market Activity
Overview
To analyze secondary transactions, we use data from Forge Data, LLC.1 The VC secondary market displayed mixed signals in Q3 2025 after solid activity earlier in the year, with deal count dropping 10.5% but transaction volume increasing 5.6% from Q2. Unlike prior years, there has been no sustained directional trend since late 2023, which suggests investors are navigating the secondary market opportunistically.
Transaction Volume and Deal Count of Secondary Transactions
Transaction Volume in Millions of U.S. Dollars and Deal Count in Actual Numbers
Source: Forge Data LLC
Activity per Industry
Percentage of Transaction Volume per Industry – Q3 2025
Source: Forge Data LLC
Enterprise Software once again led secondary trading, representing 46.2% of volume in Q3. The continued expansion of FinTech (21.4%) and Technology Hardware (8.3%) stands out, both of which had only modest shares a few years ago. In practice, the market is rewarding categories that provided clearer revenue visibility and scalability, while cyclical or capital-intensive industries struggle to attract secondary buyers.
Percentage of Transaction Volume per Industry
|
Quarter |
Healthcare |
Energy |
Enterprise Software |
FinTech |
Technology Hardware |
Consumer & Lifestyle |
Transportation |
FoodTech |
Industrial |
Real Estate |
Education |
|---|---|---|---|---|---|---|---|---|---|---|---|
|
3Q25 |
0.5% |
1.1% |
46.2% |
21.4% |
8.3% |
0.4% |
0.7% |
1.7% |
19.7% |
0.0% |
0.0% |
|
2Q25 |
2.5% |
2.5% |
38.3% |
35.8% |
7.1% |
2.1% |
1.5% |
2.8% |
7.3% |
0.0% |
0.0% |
|
1Q25 |
1.5% |
0.7% |
56.1% |
24.5% |
8.1% |
1.5% |
0.8% |
3.5% |
3.4% |
0.0% |
0.0% |
|
4Q24 |
0.2% |
1.6% |
44.3% |
22.6% |
5.5% |
4.2% |
0.3% |
2.0% |
19.3% |
0.0% |
0.0% |
|
3Q24 |
0.9% |
2.4% |
44.2% |
14.3% |
6.9% |
1.0% |
0.3% |
7.8% |
22.3% |
0.0% |
0.0% |
|
2Q24 |
0.0% |
0.7% |
66.3% |
14.4% |
6.8% |
2.9% |
0.4% |
1.0% |
7.1% |
0.0% |
0.3% |
|
1Q24 |
2.6% |
0.7% |
66.6% |
16.7% |
2.3% |
2.4% |
0.2% |
0.6% |
8.0% |
0.0% |
0.0% |
|
4Q23 |
0.0% |
0.7% |
49.2% |
10.7% |
14.5% |
11.4% |
0.7% |
2.1% |
10.9% |
0.0% |
0.0% |
|
3Q23 |
11.1% |
2.4% |
51.0% |
17.6% |
2.3% |
3.8% |
1.8% |
1.6% |
8.3% |
0.1% |
0.0% |
|
2Q23 |
4.2% |
0.0% |
54.2% |
17.3% |
0.0% |
3.4% |
1.3% |
9.9% |
9.6% |
0.0% |
0.0% |
|
1Q23 |
1.4% |
0.3% |
42.2% |
22.8% |
0.0% |
4.8% |
0.2% |
10.6% |
17.8% |
0.0% |
0.0% |
|
4Q22 |
1.4% |
0.3% |
53.5% |
12.0% |
1.3% |
16.1% |
0.7% |
6.7% |
8.0% |
0.0% |
0.0% |
|
3Q22 |
3.2% |
0.1% |
25.6% |
38.6% |
0.1% |
7.3% |
0.7% |
4.7% |
19.3% |
0.3% |
0.0% |
|
2Q22 |
4.3% |
0.0% |
39.2% |
24.6% |
0.3% |
18.0% |
0.8% |
2.6% |
6.1% |
3.8% |
0.4% |
|
1Q22 |
5.3% |
0.4% |
40.2% |
20.7% |
0.3% |
16.5% |
2.1% |
5.4% |
6.7% |
0.4% |
2.0% |
|
4Q21 |
4.2% |
0.0% |
39.3% |
23.1% |
0.9% |
14.3% |
6.7% |
4.9% |
4.7% |
0.9% |
1.1% |
|
3Q21 |
0.6% |
0.7% |
49.3% |
19.0% |
0.1% |
8.7% |
1.9% |
7.3% |
7.2% |
0.0% |
5.2% |
|
2Q21 |
3.3% |
0.0% |
40.1% |
29.7% |
0.8% |
7.8% |
1.7% |
7.0% |
7.5% |
1.0% |
1.0% |
|
1Q21 |
5.2% |
0.0% |
25.1% |
32.8% |
0.5% |
7.3% |
10.7% |
5.6% |
9.0% |
0.7% |
3.0% |
|
4Q20 |
1.8% |
0.0% |
18.1% |
37.4% |
0.0% |
4.9% |
11.0% |
5.7% |
19.4% |
1.0% |
0.7% |
|
3Q20 |
2.5% |
0.0% |
42.2% |
14.5% |
0.0% |
3.8% |
7.8% |
15.2% |
12.6% |
0.2% |
1.3% |
|
2Q20 |
2.2% |
0.1% |
13.3% |
12.7% |
0.0% |
25.9% |
21.8% |
3.2% |
18.7% |
0.3% |
1.9% |
|
1Q20 |
1.8% |
0.0% |
28.4% |
15.3% |
0.0% |
11.3% |
2.1% |
7.8% |
23.9% |
9.3% |
0.0% |
|
4Q19 |
6.7% |
0.0% |
42.3% |
11.3% |
0.0% |
15.7% |
13.0% |
5.8% |
5.1% |
0.1% |
0.0% |
|
3Q19 |
0.4% |
0.0% |
25.4% |
16.0% |
0.1% |
17.3% |
22.4% |
15.4% |
3.1% |
0.0% |
0.0% |
|
2Q19 |
2.6% |
0.0% |
36.7% |
5.5% |
0.2% |
45.5% |
1.9% |
2.8% |
4.7% |
0.0% |
0.0% |
|
1Q19 |
44.4% |
0.0% |
39.6% |
1.7% |
0.2% |
1.2% |
6.8% |
0.6% |
2.1% |
0.0% |
3.3% |
|
4Q18 |
8.4% |
0.0% |
14.8% |
11.7% |
1.1% |
19.2% |
38.9% |
0.0% |
1.9% |
0.0% |
4.0% |
|
3Q18 |
9.8% |
0.0% |
7.2% |
3.8% |
0.3% |
30.1% |
47.3% |
0.0% |
0.9% |
0.0% |
0.6% |
|
2Q18 |
15.7% |
0.3% |
7.7% |
16.1% |
0.0% |
37.7% |
20.1% |
0.3% |
2.2% |
0.0% |
0.0% |
|
1Q18 |
0.5% |
0.1% |
3.0% |
4.5% |
0.0% |
69.0% |
22.2% |
0.0% |
0.7% |
0.0% |
0.0% |
|
4Q17 |
2.3% |
0.2% |
27.7% |
4.2% |
0.0% |
44.4% |
21.1% |
0.0% |
0.0% |
0.0% |
0.0% |
|
3Q17 |
4.4% |
3.1% |
33.3% |
30.2% |
0.0% |
27.0% |
0.0% |
0.0% |
0.8% |
0.0% |
1.3% |
|
2Q17 |
1.3% |
0.0% |
51.6% |
0.0% |
0.0% |
13.5% |
33.2% |
0.0% |
0.4% |
0.0% |
0.0% |
|
1Q17 |
0.2% |
0.0% |
33.9% |
7.1% |
0.0% |
32.6% |
26.1% |
0.0% |
0.0% |
0.0% |
0.0% |
|
4Q16 |
0.6% |
8.9% |
40.5% |
0.3% |
0.0% |
27.1% |
22.5% |
0.0% |
0.0% |
0.0% |
0.0% |
|
3Q16 |
0.0% |
1.6% |
13.3% |
2.2% |
0.0% |
24.7% |
51.5% |
0.0% |
6.7% |
0.0% |
0.0% |
|
2Q16 |
0.2% |
0.0% |
10.3% |
0.4% |
0.0% |
31.2% |
57.9% |
0.0% |
0.0% |
0.0% |
0.0% |
|
1Q16 |
0.6% |
0.0% |
50.4% |
0.0% |
0.0% |
10.8% |
38.2% |
0.0% |
0.0% |
0.0% |
0.0% |
|
4Q15 |
44.4% |
9.6% |
30.0% |
0.6% |
0.0% |
12.0% |
3.4% |
0.0% |
0.0% |
0.0% |
0.0% |
Source: Forge Data LLC
Transaction Volume per Share Class2
Common stock remained the dominant security class in secondary trading, making up 45.9% of volume over the past twelve months and 60.3% since 2015. This is primarily driven by different equity concentration of (i) early- versus late-stage investors, (ii) founders’ versus institutional investors’ risk tolerance, preferences and liquidity horizons, (iii) cumulative price inflation since series seed rounds, (iv) investor contractual protection rights, and (v) different supply dynamics per equity holder group or security class owners.
Percentage of Transaction Volume per Share Class
Source: Forge Data LLC
Transaction Volume per Buyer Type and per Seller Type
Individual investors continued to play a significant role, accounting for 52.7% of buyer activity and 58.4% of seller activity in Q3 and represented an average of 56.6% of buyer activity and 76.7% of seller activity over the past 10 years. This consistent presence of individual investors suggests that the secondary market is characterized by active participation, potentially driven by diverse liquidity needs and strategic considerations.
Percentage of Transaction Volume per Buyer Type
Source: Forge Data LLC
Percentage of Transaction Volume per Seller Type
Source: Forge Data LLC
Exit Activity
Overview
In Q3 2025, exit activity softened, with total deals slipping 16.9% QoQ. Information Technology remained the clear driver of activity, accounting for 55.0% of all transactions. This continued concentration underscores how buyers are prioritizing tech assets that are either foundational to enterprise infrastructure or tied to long-term secular shifts such as AI, cybersecurity, and data management. Other sectors, like Healthcare and Consumer Products, are still active, but they are increasingly sidelined, suggesting that investors and acquirers are raising the quality threshold for what constitutes an “exit-ready” business.
Percentage of Exit Deals per Industry – Q3 2025
Source: PitchBook Data, Inc.
In line with past historical trends, mergers and acquisitions continue to dominate as the preferred exit route, consistently accounting for the majority of total exits throughout the past year.
Historical Number of Exits
Number of Exits in actual numbers
Source: Forge Data LLC. Other exits include Secondary Buyouts, Investor Buyout by Management, Merger of Equals and Reverse Merger.
We observe that exit activity was higher from January to May before cooling in the subsequent months.
- Source: Private market data provided by Forge Data LLC, a division of Forge Global Holdings, Inc. (“Forge”). Forge is a leading provider of private market infrastructure, data services and technology solutions.
- The share classes are Common (includes options and common stock), Preferred (includes all classes of preferred stock), and Units, which indicates that units of a fund were sold.
