Why is it harder for startups to raise capital from VCs today?
Over the past few years, we’ve seen fewer IPOs, fewer exits, and significantly less liquidity. Interest rates are up, geopolitics is volatile, and investors — in Israel and globally - have become far more selective.
Here’s a breakdown of the key reasons why raising capital in 2025 is so challenging:
1. Liquidity Crunch for VCs
Since 2022, rising interest rates and global uncertainty have led to a significant drop in IPOs and exits. With fewer liquidity events, VCs are struggling to return capital to LPs — which slows down the entire funding cycle and reduces available capital in the market.
2. Harder Fundraising for VCs from LPs
Many large VC funds are shifting toward a private equity (PE) model, diversifying into crypto, secondaries, or doubling down on existing growth-stage portfolio companies. This strategy helps generate returns and fees — even without traditional exits — but it also means less capital is flowing into new startups.
3. The Rise of Secondaries – But at a Cost
With liquidity drying up, the secondaries market boomed in 2024, reaching $160B and projected to hit $200B in 2025. In secondaries, existing shareholders (like founders) sell their shares to new investors. While this provides some liquidity, it can also signal a lack of long-term conviction, and may create misalignment between founders and new investors.
4. 75% of VC Capital Is Concentrated in 30 Funds
The venture landscape has become increasingly centralized. Raising a new or second-time fund is significantly more difficult — especially for emerging managers. This adds further pressure on early-stage startups looking for first checks.
5. Talent Wars + AI Centralization
Investors are watching top AI talent gravitate toward Big Tech — and that’s where the capital is going. In H1 2025, over 50% of global VC funding went into AI, according to Pitchbook. In Israel, AI and Cyber accounted for a staggering 85% of total investments last quarter, per IVC and LeumiTech.
The Meta–Scale AI deal (14.3B USD for 49%) is a perfect example. It wasn’t just an investment — it was a strategic move to secure Alexander Wang and his AI superteam.
This creates a tough environment for AI startups without a superstar founder, unique data advantage, or clear edge.
6. 2025 Pre-Seed = 2020 Seed
Investor expectations have shifted dramatically. What used to qualify as a Seed round in 2020 is now considered Pre-Seed in 2025. Back then, a great deck and a strong technical team could raise capital. Today, investors expect a product, early traction, and a solid team — even at Pre-Seed.
Seed rounds now average around $3.5M (per Carta), and many Seed investors are moving earlier, writing $500K–$1M checks at Pre-Seed.
7. Fewer Deals, More Capital Per Deal
According to CB Insights, deal volume has dropped 35–50% compared to the 2021–2022 peak. With higher interest rates, investors are more cautious, funds are more concentrated, and liquidity is scarce. As a result, there are fewer deals overall — but the average deal size has grown.
📌 PS – Some of these insights were already mentioned in a post I shared back in May, especially the VC → PE shift. I also drew inspiration from recent conversations with Avishag Bohbot and Miriam Shtilman Lavsovski, plus a sharp LinkedIn post by Guy Katsovich. And of course, lots of data digging through reports and market updates online 😉