Artificial intelligence continues to reshape the venture capital landscape, commanding premium valuations and significant capital in Q1 2025, according to the latest Venture Beacon report from J.P. Morgan's Aumni and Fenwick.
The report, analyzing U.S. venture deals from Series Seed to Series D+, highlights AI's outsized influence, with AI-focused startups securing 30% of early-stage deals and 60% of late-stage capital.
"Artificial Intelligence (AI) continues to be a bright spot for the market in Q1 2025," stated Sebastian Quintero, Executive Director and Head of Applied Research & AI at Aumni.
AI-driven companies at Series A raised more capital and achieved valuations 12% to over 150% higher than non-AI counterparts across industries like healthcare, information technology, and finance.
The report notes that AI deals have grown from less than 15% of Seed and Series A rounds in 2021 to 30% in Q1 2025.
Despite AI's dominance, the broader venture capital market faced a mild downturn, with deal sizes dropping 7.5% to 31% quarter-over-quarter and valuations declining 13% to 37% across most stages.
Series A and Series D+ were exceptions, with valuations rising 6.2% and 30%, respectively.
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Mega deals ($100M+) remained elevated but accounted for only 4.3% of total rounds, down from a 2021 peak of 9.8%.
These mega deals, increasingly AI-driven, raised seven times more capital and commanded 8.8 times higher valuations than conventional rounds.
The report also details shifts in deal mechanics and governance. Extension rounds rose to 28.1% from 22.5% in Q4 2024, and follow-on investments increased to 24.4%, reflecting a focus on supporting existing portfolios.
The median time between rounds shortened to 21 months, indicating faster fundraising cycles. Board sizes at Series C+ decreased to six members from seven, suggesting streamlined governance, while founders retained stronger ownership due to lower dilution.
Investor protections strengthened, with liquidation preference multiples above 1x rising to 4.7% from 3.5% in 2024, and pay-to-play provisions gaining traction in Series B and C rounds.
Convertible notes and SAFEs showed mixed trends, with valuation caps dropping significantly for deals over $5M and interest rates on convertible notes rising 200–300 basis points despite a declining federal funds rate.
"The first quarter of 2025 has been defined by recalibration, with strategic adjustments taking center stage," the report's foreword by Fenwick partners states.
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