What You’ll Find This Week

This year has been brutal for founders trying to raise VC dollars. If you’re not hawking AI, you’re not getting funded. If you’re an early stage company, you’re going to struggle to get funded. If your company isn’t called OpenAI, good luck getting funded.

Why? In this edition, we break it down by the numbers…

Here’s what you’ll find:

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This Week’s Article

Globally, venture funding is up. AI startups are raking in multi-billion dollar rounds. Some markets are even seeing new funds close, not just from top-tier names, but emerging managers too. On paper, things look healthy.

But the headlines lie. Or more accurately, they mislead. Because outside a narrow slice of AI infrastructure and multi-stage capital allocations, most founders are finding themselves in one of the most punishing capital markets in recent memory.

The 2025 fundraising environment is brutal. And it’s distorted, which is masking real structural pain for founders raising early-stage capital. Especially those building outside the hype cycles, the hot funds, and the echo chambers of the Bay Area and generative AI.

In Q3 2025, global venture funding rose 38% YoY from $70 billion in Q3 2024 to $97 billion in Q3 2025. But that growth was heavily skewed by a handful of massive outlier rounds. According to Crunchbase, OpenAI’s $40 billion round alone accounted for over 20% of global startup funding for the quarter. In fact, just 18 companies raising $500M or more made up more than a third of all venture investment.

Without these mega-rounds, the market would have looked far weaker.

But Q3 also showed a steep decline in the number of new deals closed, particularly at the pre-seed and seed stages. Carta recently reported a 7% drop in deal count year over year, even as capital raised increased by more than 18%.

The market is bifurcating. Fewer companies are getting funded, but those that are securing cash are raising much larger rounds. A small number of AI companies are raising multi-billion dollar rounds at valuations that resemble the peak frenzy of late 2021.

Everyone else is shifting from "founder mode" to "survival mode."

What once qualified as a Pre-Seed round is now functionally a Seed. And what used to be a Seed round now requires traction that would have been Series A material three years ago.

Of course, this isn't the first time we've seen the early-stage bar move. The same shift happened after the 2008 crash and again in the aftermath of the 2015 unicorn correction. Each time, the capital tightened, the expectations rose, and founders were forced to bring more proof to the table, earlier in the journey.

The math behind this shift is clear:

But most investors aren't looking for just a 3x return from one company. They're betting that only a small number of portfolio companies will return the fund. Which is why they aim higher: a $1.5B exit at 10% ownership yields $150M, or a 6x on a $25M fund.

That kind of upside is what most early-stage VCs are hoping for when they write checks today.

What it really takes to raise a pre-seed round in 2025. When I say pre-seed, I’m talking about rounds between $500K–$1.5M. Here’s what you need to show:

An Exceptional Team: At this stage, the bet is on you. Show that you and your co-founder(s) have founder–market fit, deep domain expertise, a unique earned insight, or a technical edge that makes you the right people for this problem. Your obsession should be palpable. Investors should leave the meeting thinking: “This team is going to build something great with or without us.”

Early Traction: Ideally, you have an MVP and proof of real customer interest. The bar has gone up. Most pre-seed rounds getting done right now are post-revenue, but at minimum you need real customer validation and a clear understanding of the willingness to pay.

A Big Market: You're building into an inevitable future created by regulatory tailwinds, policy changes, or deep industry shifts that make adoption feel less like if and more like when. Think about what’s creating momentum around your category...new compliance rules, shifting consumer behavior, emerging technology standards and show investors why the timing is now.

Ultimately, every pre-seed investor is asking: Could this be a billion-dollar company and return my fund?

Original Post on LinkedIn

Founders used to treat accelerators as a pathway to capital. But even the most highly respected accelerators (YC anyone?) are beginning to show their cracks.

Even worse, many accelerators are pushing unsustainable valuations: $20–$40M post-money on 7% equity deals which can choke a company’s ability to raise follow-on funding.

So, while the "YC" brand may help you get into meetings, it might also leave you with terms that are impossible to justify when you’re still pre-traction.

Controversial take (at the risk of getting kicked out of future YC demo days): What if getting into Y Combinator actually made your outcome worse?

Here's what nobody tells you…

Most of what accelerators provide, you can get for free:

The worst part?

YC invests in 400+ companies per year. They don't have time to actually help you beyond the program. You're a lottery ticket in a portfolio.

The 2-3 breakout companies subsidize the other 197. You're probably one of the 197.

And worse. Because they only make money from the breakout companies they would rather optimize their outcomes by pushing everybody to $20m-$40m post money SAFEs to optimize for the winners... Even though it's the wrong valuation for you and can kill your company.

Yes, getting over your skis on valuation can kill your company. And no, YC doesn't care because while your company is dead they make more money on the winners.

Here's my controversial recommendation…

Skip the accelerator. Take that 7% and:

Is 3 months of mentorship worth 7% of everything I'll build for the next decade?

For most founders with any serious experience, the answer is no.

But everyone's too afraid to say it.

Original Post on LinkedIn

With exits still uncertain and LP pressure building, VCs are being forced to make fewer bets and demand more from each one. Many funds raised during the 2020–2022 boom are now sitting on portfolios with little or no liquidity.

According to Carta’s Q2 2025 VC Fund Performance Report, DPI across 2020–2022 fund vintages remains low with 2020 funds at just 0.11x and 2022 funds at 0.04x. Most capital remains unrealized, and distributions to LPs have stalled.

DPI, or Distributions to Paid-In Capital, is one of the core financial metrics that private fund managers in VC use to evaluate their investment performance. Successful funds distribute more capital back to investors than investors paid in, meaning the multiple will be something above 1.0, such as 2.3x. Earlier in the fund's lifecycle, before investments have had sufficient time to yield returns, the multiple is typically below 1.0.

Learn more about the DPI metric here.

That puts GPs in a bind. They can’t raise their next fund until they prove their last one worked. And they can’t prove it worked until they get real exits. That pressure translates into stricter decision-making, more conservative deal terms, and fewer second chances.

Founders feel the impacts of the VC crackdown which shows up in:

The result? A high-stakes game of musical chairs and not enough seats. Even good companies are getting passed over, not because they’re broken, but because VCs simply can’t afford to be wrong right now.

The founders who are successfully raising today are those with traction, timing, or technical edge. Teams building in categories with structural tailwinds like AI infrastructure, security, or energy systems. Repeat founders with networks and prior wins.

Everyone else is either waiting it out, bootstrapping longer, or rethinking whether venture capital is even the right path at all. (More on these trends soon!)

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This environment rewards focus, capital efficiency, and direct access to customers. Most importantly, it punishes noise. That includes inflated valuations, over-engineered narratives, and the illusion of product-market fit.

As noted by Olivia O’Sullivan above, VCs want revenue, retention, and real reasons to believe.

The signal-to-noise ratio is higher than it’s been in years. If you’re sitting on dry powder, and you’re not chasing the AI hype-cycle, now is the time to find underpriced talent solving meaningful problems in other areas. Founders who are still in the game, and still growing, are doing it without the halo of hype or inflated valuations.

Some of the strongest companies of the last decade were funded during downturns. And the same opportunity exists now. But you won’t find those opportunities at demo days or in tech rag headlines. You’ll have to focus on direct sourcing, contrarian bets, and the willingness to move before the market re-rates these teams.

This market won’t last forever. And the founders who survive it, or better yet, the ones who build durable companies through the downturn, will own more of their companies, build tighter teams, and develop stronger instincts.

This may be one of the worst times to raise venture funding.
But it might also be one of the best times to build something real.