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INTRODUCTION
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Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
Sullivan & Cromwell LLP provides the highest
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of success and excellent client service have set
it apart for more than 140 years and made the
rm a model for the modern practice of law. To-
day, S&C is a leader in each of its core practice
areas and in each of its geographic markets.
Its more than 900 lawyers conduct a seamless,
global practice through a network of 13 oces
worldwide. Its capital markets and pre-eminent
M&A practices are deeply intertwined with the
development of growth companies and their
investment structures. As such, S&C regularly
represents venture capital investors and growth
companies alike, particularly in later-stage and
more sizeable transactions.
Contributing Editors
Carsten Berrar is a member of
Sullivan & Cromwell’s
management committee,
managing partner of the rm’s
Frankfurt oce, and co-head of
its global capital markets group.
As one of Germany’s leading lawyers both for
M&A and capital markets, he has advised
countless start-ups and rapidly scaling
companies in connection with signicant
corporate transactions such as nancing
rounds, M&A events and IPOs. His practice
includes advising nancial and venture
capitalist investors in this context. Carsten has
been recognised as German “Dealmaker of the
Year” and he is ranked Band 1 by Chambers
and Partners for German Corporate/M&A and
as a “Star Individual” for German Capital
Markets: Equity.
Florian Späth is a senior
associate in Sullivan &
Cromwell’s Frankfurt oce. He
has extensive experience in
private and public M&A
transactions alike and focuses
on matters involving private equity investors
and nancial sponsors. In 2021/2022, Florian
joined Deutsche Boerse Group, a leading
European provider of nancial markets
infrastructure, where he headed the group‘s
legal M&A and venture capital (VC) activities. In
this capacity, he co-ordinated and provided
counsel on Deutsche Boerse‘s M&A and VC
projects, strategic partnerships and innovation
initiatives.
Heiko Blaut is an associate in
Sullivan & Cromwell’s Frankfurt
oce. He is a member of the
rm’s general practice group, is
admitted to the Bar of Frankfurt
am Main, and is uent in English
in addition to German.
INTRODUCTION
Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
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Global Overview 2025
After the record year of 2021, the global venture
capital (VC) industry and the ecosystem encom-
passing growth companies have been subjected
to profound transformations, marked by shifts
in key metrics such as elevated discount rates
impacting company valuations, a decline in suc-
cessful exits, and an uptick in investor-friendly
deal terms coupled with a surge in bridge nanc-
ing arrangements. In 2024, most of these chal-
lenges persisted as holdovers, with signicant
elections in a number of major jurisdictions and
geopolitical tensions keeping uncertainty at ele-
vated levels throughout much of the year. VC
investors continued to be selective with their
investments, focusing primarily on more mature
ventures and companies with clear paths to prof-
itability. Overall, however, the global VC indus-
try saw a modest year-on-year (YoY) rebound
in 2024.
The VC industry and its portfolio companies
have evolved to become a shaping force in and
for the global economy. Total VC investment vol-
ume in 2024 amounted to USD368.3 billion on a
worldwide basis, marking a moderate gain from
the previous gure of USD345.7 billion (in 2023)
and a slight recovery from 2023’s ve-year low. A
total of 35,684 VC-related transactions aecting
growth companies globally – including nancing
rounds, M&A deals, and IPOs – amounted to a
further 5.6% decline from the 37,809 transac-
tions recorded in 2023.
Early stage nancing continues to dominate in
terms of absolute transaction gures, account-
ing for 69% of all deals. On the other end of the
life cycle, total exit value came down even fur-
ther to USD318.5 billion compared to USD335.1
billion of the preceding year, perpetuating an
environment where liquidity events are rare.
Median deal sizes across Series B, C, and D+
rounds rose substantially in both the Ameri-
cas and Europe compared to 2023, with D+
nancings rising the most from USD60 million
to USD100 million in the Americas and from
USD59.4 million to USD80 million in Europe.
Unicorn VC deal ow likewise appreciated sig-
nicantly to USD119.8 billion in 2024, up from
USD84.5 billion in 2023 – with a total of 1,249
active start-up companies now valued at more
than USD1 billion globally.
In terms of geographical distribution, the
USD204.3 billion deployed in North America
again led the way, followed by Asia (USD64.7
billion) and Europe (USD63.8 billion) which saw
opposite trendlines in terms of YoY develop-
ments (deceleration in Asia; pick up of activity
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4CHAMBERS.COM
in Europe). In terms of micro-geographies, the
California Bay Area takes the US’s lead, with
USD52.1 billion invested in VC-backed compa-
nies in 2024. The most prominent and largest
California Bay Area deals all went to ventures
engaged in AI (Databricks, OpenAI, xAI, Way-
mo and Anthropic). In Europe, out of the conti-
nent’s total of USD63.8 billion invested, the UK
(USD19.4 billion), France (USD8.8 billion) and
Germany (USD8.5 billion) took the top spots.
Among the most sizeable European transactions
were Wayve (USD1 billion), a venture engaged
in the development of a self-learning system for
autonomous driving, and British IT infrastructure
provider GreenScale (USD1.3 billion).
The most substantial funding round in Asia was
secured in Q4 2024 by the Chinese electric vehi-
cle company AVATR, raising USD1.5 billion in a
Series C round. Chinese companies also domi-
nated the next largest funding rounds in Asia,
with clean energy provider CNNP Rich Energy
and electric vehicle joint venture IM Motors at
the forefront, each securing USD1.1 billion. Indi-
an e-commerce company Flipkart completes the
Asian top fundings with USD1 billion.
Key trends
AI gaining global momentum
In terms of industries, articial intelligence (AI)
globally attracted the most sizeable share of
VC investment volume: AI start-ups raised over
USD100 billion, accounting for around 29% of
all venture funding. The largest deals of 2024 all
evolved around renowned AI model and infra-
structure players. In the lead, Databricks raised
USD10 billion in a Series J round, followed by
CoreWeave (USD8.6 billion), OpenAI (USD6.6
billion) and xAI (USD6 billion in two rounds).
Out of the 16 investment rounds exceeding
USD1 billion in 2024, nine of those were invest-
ments into AI companies, representing 80% of
such rounds in terms of value.
Rebound in valuation growth
As the interest rate environment softened fur-
ther, valuation levels for start-ups cautiously set
out on a path towards recovery in 2024 and are
expected to rise further in 2025.
Amid challenging geopolitics, macroeconomic
uncertainties, and idiosyncratic regional head-
winds, the valuations of growth companies have
declined since 2021. This trend is reected both
in nancing round valuations and the exit value
for liquidity events. To illustrate the point, the
number of valuation step-ups (increase in a
company’s pre-money valuation between two
consecutive nancing rounds) fell to a ten-year
low globally in 2023. That said, in the current
cycle of the industry downturn, many assess
that valuations then had bottomed out.
The global exit value for liquidity events of growth
companies (such as M&A trade sales or IPOs)
amounted to USD318.5 billion in 2024, a loss
compared to the total volume of USD335.1 bil-
lion in 2023 and still a long shot from the USD1.5
trillion deployed in 2021. Increased valuations
could be observed in both the US (USD149.2
billion in 2024 vs USD120 billion in 2023) and
Europe (USD68.1 billion in 2024 vs USD46 bil-
lion in 2023), while levels in Asia hit a low point
(USD93.2 billion in 2024 vs USD155.8 billion in
2023).
In 2024, around 30% of all nancing rounds in
the US market saw a at or reduced pre-money
valuation relative to the start-up’s last round. In
Europe, by contrast, a mild decrease of valuation
haircuts (19% in 2023 vs 18.1% in 2024) gener-
ally could be regarded as an encouraging sign of
a recovery in its early innings which, despite its
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Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
5CHAMBERS.COM
fragility, may accelerate. The median exit value
in Europe in 2024 ended 35.1% higher, driven by
increased investor appetite for buyout transac-
tions.
Fundraising headwinds
In 2024, fundraising challenges were still evi-
dent across the global marketplace. Globally,
USD169.7 billion was raised, less than 80% of
the USD213.8 billion provided by limited part-
ners (LPs) in the preceding year. In terms of
geographical distribution, USD76.1 billion in the
US led the way (USD97.5 billion in 2023), fol-
lowed by USD66 billion provided to Asian VC
funds (USD86.7 billion in 2023) and with Europe
continuously lagging behind (USD22.5 billion in
2024, virtually at from 2023 levels).
Besides the reduction in distributions from vin-
tage funds, the further decrease can be attrib-
uted to several other factors, including LP with-
drawals prompted by a perceived shortage of
liquidity events, a reallocation of assets to less
volatile classes, attractive public market condi-
tions and a resurgence of crypto, as well as a
general hesitation among VCs to inject addi-
tional capital into companies facing declining
valuation levels.
Fundraising opportunities were increasingly con-
centrated among sizeable funds with prominent
reputations and typically exceeding USD1 billion
in targeted fund size, underscoring pre-existing
market inclinations towards a concentration
of capital allocation. While the total volume of
capital raised in the US in 2024 exceeded pre-
pandemic levels, fund counts in the US were at
decade lows, at merely 31.3% of the number of
funds present in 2022 and progressively con-
centrated among a handful of established rms.
Against the backdrop of market fundraising
highs in 2021 and 2022, however, total available
“dry powder” in the VC industry reached new
global record levels standing at USD307.8 billion
of deployable capital in 2024.
Shifting the focus towards the Asia-Pacic
region, China still nds itself navigating through
macroeconomic headwinds against a backdrop
of economic challenges. Notably, VC transac-
tions involving Chinese start-ups witnessed a
further decline, plummeting from USD63.7 bil-
lion in 2023 to USD38 billion in 2024. Sequoia
Capital, which has invested in China since 2005,
recently initiated the separation of its Chinese
operation.
Amid China’s economic downturn, international
investors seeking opportunities in Asia have
directed their attention to other countries. With
USD11 billion deployed in 2024, India contrib-
uted a signicant 27% of the region’s venture
funding representing a 40% growth trajectory
YoY. In Japan, overall VC deal value in 2024
exceeded the total for 2023, primarily driven by
signicant funding rounds. Moreover, the market
more broadly seemed to evolve as US-based
Andreessen Horowitz announced plans to open
an oce in Japan.
Paradigm shift: growth vs protability
The sustainability of a start-up’s business model,
its margins, cash ow conversion, adaptable and
recurring revenues as well as a clear-cut pathway
to protability have become a (re-)discovered
focus area for venture capitalists and the broad-
er community. The intensied pressure recently
manifested itself in cost-cutting measures, a sig-
nicant wave of tech lay-os and declarations
that the “war for talent” is over. At the same time,
premiums on growth (as opposed to eciency)
continue to be particularly pronounced in sec-
tors such as next generation software, biotech
and AI – indicating a bifurcated market when it
INTRODUCTION
Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
6CHAMBERS.COM
comes to terms growth companies can demand
from investors.
Fewer exits, lackluster distributions
Growth companies continue to face signicant
challenges with their exit strategies, placing
substantial strain on sales processes for busi-
nesses. Globally, 2024 saw a total of 8,397 M&A
exits (compared to 8,529 in 2023) and 355 IPOs
(compared to 444 in 2023). The European market
continued to suer, with 3,472 M&A exits in 2024
(substantially at from 2023 levels) and 42 IPOs
(down from 52 in 2023), while the US likewise
felt the impact with 3,055 M&A exits in 2024 vs
3,167 in 2023 and 71 IPOs (up from 65 in 2023).
On average, from the time of rst funding to IPO,
it took VC backed companies that went public in
2024 two years longer than in 2022 – a median
of 7.5 years.
In light of the quadrupling of active venture/
growth investors during the past decade as well
as the massive decline in VC distributions in
2022 and 2023, which has not been seen at this
level since the global nancial crisis, distribu-
tions remained signicantly below the ten-year
average in 2024 but indicate a slight increase
for 2025.
Alternative nancing structures
Overall, declining valuations and rocky exit path-
ways have prompted demand for alternative
transaction structures and nancing solutions,
which have provided a counterpoint to turbulent
markets. At the same time, venture debt corre-
lates with overall funding conditions, as equity
funding tends to constitute a growth company’s
primary repayment source.
Non-dilutive measures
With VC backing becoming both scarcer and
more costly, start-ups are eyeing non-dilutive
nancing options as a viable alternative. In
2023, non-dilutive funding for European start-
ups increased by 50% compared with the previ-
ous year. Unlike venture debt, which may include
equity warrants, non-dilutive nancing options
include revenue-based nancing and term loans.
While most growth companies continue to prefer
external equity nancing in order to drive rapid
growth, current market conditions have spurred
a search for tailored alternative structures.
Bridge rounds
Venture capitalists have increasingly turned to
bridge rounds (typically led by, or conned to,
existing investors) in order to support their port-
folio companies rather than following through
with new investment rounds with terms deemed
insuciently attractive. The tendency was par-
ticularly discernible among late-stage start-ups,
where valuation levels had decreased most sig-
nicantly. The surge in bridge rounds among
early stage start-ups follows an initial period of
more favourable capital raising conditions com-
pared to late-stage companies. Bridge rounds
were oftentimes combined with a structured ele-
ment to partially provide liquidity for secondary
shares.
Ramications of trends in deal terms
Deal terms reect a shifting market
With growth companies running low on cash, a
need to raise funds in a compressed timeframe
contributed to existing market pressures. Shift-
ing dynamics have led to an altered transactional
practice not seen in nearly a decade: venture
rms’ enhanced negotiation leverage has per-
mitted more investor-friendly terms, including
more sizeable equity stakes and increased or
cumulative dividend rights (guaranteed returns
such as compounding interests as part of the
liquidation preference owed to shareholders,
irrespective of the company’s nancial perfor-
INTRODUCTION
Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
7CHAMBERS.COM
mance). Cumulative dividends were present in
4.7% of all US VC deals with dividends in Q4
2021 and, notably, surged to 23.4% by Q1 2024.
In the realm of anti-dilution provisions, only
around 2% of transactions are provided with
full anti-dilution ratchets to enhance investor
protection during down rounds. Most transac-
tions with anti-dilution protection (approximately
80%) used weighted average ratchets.
In purchase or subscription agreements (other
than stock purchase agreements in the US), a
tangible tendency for founders to stand behind
representations and warranties was discernible.
This signals a shift by investors towards risk
mitigation and a focus on documented due dili-
gence, reecting, overall, a more prudent invest-
ment approach.
Moreover, the allocation of board observer seats
to investors’ representatives has increased. This
trend mirrors investors’ aspirations for increased
appetite for engagement in their portfolio com-
panies’ governance and business aspects.
Consent rights for the benet of investors have
decreased signicantly. Compared to 2023,
where in 42% of European convertible nanc-
ings investors managed to secure consent rights
to certain matters, in 2024 only 15% of those
convertible nancings included consent rights
for investors. This marked a shift back to more
company-friendly terms, where convertible
investors typically do not have consent rights
on their convertible investment given their non-
equity shareholder status at the time of invest-
ment. Despite this, and for reasons similar to the
shift in pre-emption rights, convertible investors
continued to seek information rights in 49% of
convertible nancings, marking a 26% increase
from 2023.
Liquidation preferences have long been nearly
ubiquitous in many jurisdictions, especially in
early stage nancings. Participating liquidation
preferences grant investors the right to receive
their originally invested amount in the event of a
sale or liquidation and, on top of that, share of
any remaining proceeds with holders of com-
mon stock on a pro rata basis (“double dip”).
A non-participating 1x liquidation preference
with a conversion right for the investor typically
constitutes the default. Despite shifting econom-
ics, there has not been widespread adoption of
increasing preference multiples to more than
1x (outside of distress scenarios) while region-
al practices seem to vary slightly. Any such
increases, if agreed upon, are typically tailored
to the specic circumstances of the situation. By
contrast, investors have more frequently been
able to negotiate participating liquidation prefer-
ences across all stages of a company’s develop-
ment cycle, compared with recent years.
Continued trend towards standardised
documentation
Documentation for equity-based nancing con-
tinues to move towards standardisation across
geographies, with key model documents origi-
nating from the US National Venture Capital
Association (NVCA), the British Private Equity
and Venture Capital Association (BVCA), the
German Start-up Association (Bundesverband
Deutscher Startups e.V.) and the Simple Agree-
ment for Future Equity (SAFE) (as described in
more detail further on in this introductory article).
Similar initiatives can be observed in many juris-
dictions, including:
• Canada (Canadian Venture Capital and Pri-
vate Equity Association, or CVCA);
• Singapore (Singapore Venture and Private
Capital Association, or SVCA);
INTRODUCTION
Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
8CHAMBERS.COM
• Switzerland (Swiss Private Equity and Corpo-
rate Finance Association, or SECA); and
• China (China Venture Capital and Private
Equity Association, or CVCA).
NVCA
The NVCA is a trade association that represents
the VC industry in the US. It has been publishing
model documents for VC nancing rounds since
2003, which have become the industry standard
for practitioners and are frequently used even in
bespoke and sizeable transactions. The set of
documentation is regularly updated once a year
to reect evolving market norms. Today, NVCA
documents aect key deal terms and market
practice well beyond the shores of the jurisdic-
tion they have been designed for.
BVCA
Similarly, the BVCA provides model documents
for early stage investments. They illustrate the
value standardised documentation for VC trans-
actions holds across jurisdictions. The BVCA
documents are utilised for post-seed early stage
investments in the UK, particularly in Series A
funding rounds – with the aim of facilitating the
adoption of an industry-standard legal frame-
work for such investments.
German Standards Setting Institute
The German Standards Setting Institute (GESSI)
is a joint project of Business Angels Germany
e.V. and the German Start-up Association, which
equips (registered) start-ups, business angels
and investors with expertly crafted templates
for their essential legal documentation, includ-
ing convertible loans, term sheets and nancing-
round agreements.
SAFE
Similarly widespread in adoption – among early
stage companies, in particular – is the so-called
model SAFE agreement. SAFE governs a nan-
cial instrument in the early stage nancing con-
text and was originally established in 2013 by
renowned incubation hub Y Combinator. The
template contemplates equity-like nancing in
exchange for yet-to-be-issued shares, providing
founders with exibility and control with reduced
paperwork. Prior to conversion, the investor’s
claim is limited to prospectively issuable prefer-
ence shares – the rights to which are dened
in the subsequent nancing round. Funds carry
no coupon or Paid-in-Kind (PIK) interest in the
absence of a predened maturity.
Key features in SAFE agreements include a
valuation cap, which refers to a predetermined
maximum for equity upon conversion and dis-
counts investors receive o the price per share
paid by new investors in a subsequently priced
equity round (with around 20% being the norm).
It became the go-to option for US early stage
start-ups, owing to its simplicity and focus on
future growth potential, and is gradually replac-
ing traditional convertible loan structures as the
preferred nancing option.
Drawbacks that come with the use of the SAFE
structure include an absence of protection
or control rights on the part of investors and,
with regards to the founding team, a potential
underestimation of their collective dilutive eect
if used vis-à-vis multiple investors consecutively.
Increasingly exacting foreign direct investment
standards
Foreign direct investment regulation has become
increasingly relevant in the context of cross-
border nancing rounds in growth companies,
holding the potential to delay closing for non-
domestic investors. This trend is evident not
only in the US but also in EU countries such as
Germany.
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CFIUS
The scope of the Committee on Foreign Invest-
ment in the US’s (CFIUS) jurisdiction expanded
signicantly with the enactment of the Foreign
Investment Risk Review Modernization Act (FIR-
RMA) in August 2018. Notably for growth com-
panies, transaction parties are required to submit
a mandatory CFIUS ling at least 30 days prior
to closing, irrespective of deliberate transac-
tion structuring to grant foreign investors solely
passive economic and no other governance or
contractual rights. This signies a re-denition
of the “completion date” of a transaction as the
date on which any equity transfers to a foreign
investor. Most mandatory CFIUS lings relate to
US companies involved in advanced technolo-
gies (eg, semiconductors) and/or personal data.
On 18 November 2024, the US Department of
the Treasury issued a nal rule vesting addition-
al authority in CFIUS to review “non-notied”
transactions, while generally establishing higher
minimum penalties for non-compliance.
Recent developments reect heightened con-
cern regarding Chinese investors. Prominent
examples include the required divestment and
removal of improvements on land purchased by
MineOne (a Chinese company) within one mile of
an Air Force base and the blocking of the Nippon
Steel/US Steel transaction after CFIUS referred
the deal for a Presidential decision.
For 2025, the US President’s “America First
Investment Policy” suggests there will be
enhanced focus on restricting Chinese invest-
ment in “strategic” sectors (including technolo-
gy, critical infrastructure, healthcare, agriculture,
energy, and raw materials), an expansion in the
scope of “critical technologies” that can neces-
sitate a mandatory CFIUS ling, the establish-
ment of a “fast-track” review process “to facili-
tate greater investment from specied allied and
partner sources in US businesses involved with
US advanced technology and other important
areas” and an attempt to work with Congress to
expand CFIUS’s jurisdiction to review “green-
eld” investments.
With eect as of 2 January 2025, a Final Rule
issued by the US Department of the Treasury
requires US persons to notify certain outbound
investment transactions and prohibits certain
outbound investment transactions, in each case
involving persons of “countries of concern” (cur-
rently only China) that engage in “covered activi-
ties” involving certain sensitive technologies and
products in the semiconductors and microelec-
tronics, quantum information technologies, and
AI sectors.
Foreign Trade and Payments Ordinance
The past few years have also seen ever-increas-
ing impediments and more exacting standards of
review for non-EU investors. At the EU level, the
regulatory framework for foreign direct invest-
ment (FDI) control is governed by Regulation
(EU) 2019/452. However, a signicant variance
exists among national screening mechanisms,
impacting the eectiveness and eciency of the
system in addressing security and public order
concerns. Notably, in Germany, there is a 10%
threshold in certain cases of critical infrastruc-
ture that may include less sizeable companies.
If a non-EU/non-European Free Trade Associa-
tion foreigner seeks to acquire at least 20% of
the voting rights in a German company in one
of 19 security-relevant areas of high and future
technology, a reporting obligation is triggered.
In 2023, seven EU member states collectively
accounted for 85% of all cases submitted,
underscoring a concentration of screening activ-
ities. Given that 80% of FDIs within the EU were
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10 CHAMBERS.COM
concentrated in six key sectors – namely, Infor-
mation and Communications Technology (ICT),
wholesale, retail, nancial activities, professional
activities and manufacturing – the control of FDI
assumed heightened signicance in regulating
these sectors. The six main jurisdictions of ori-
gin were the US, the UK, the United Arab Emir-
ates, China (including Hong Kong), Canada and
Japan.
Outlook for 2025
Despite continued signicant geopolitical uncer-
tainty, particular headwinds that have held back
activity in the VC industry during the post-pan-
demic years may be fading in 2025: a shift back
to more accommodating monetary policy condi-
tions, ventures that have tended to “de-risk” by
increasing focus on protability as opposed to
growth, policy trends such as a recognition of
the start-up industry as a driver for prosperity in
Europe and an openness on the part of the new
US administration in respect of crypto-curren-
cies all point to a general resurgence of activity.
While the lackluster environment for (sizeable)
exits has strained the traditional VC model over
the past couple of years, promising candidates,
notably in the ntech space, including Stripe,
Revolut, Klarna and Chime, may alleviate linger-
ing concerns.
In terms of funds to be deployed, AI is expected
to remain the primary focus for VC investors
globally. From generative AI that produces con-
tent to agentic AI that operates independently,
the elds of application are expected to pro-
foundly aect virtually every industry, includ-
ing healthcare, law and software development.
Beyond AI, healthcare and biotech continue to
be prime investment sectors, including due to
their relative resilience in economic downturns,
in both the US and Europe.
Given the current and ongoing geopolitical
developments, defence technology and cyber-
security are also becoming increasingly impor-
tant, illustrated by massive defence technology
rounds including, but far from being limited to,
California-based Anduril Industries and Mach
Industries (specialised in advanced autonomous
systems and systems for vertical take-o and
landing as well as cruise missiles and other high-
performance vehicles) and German start-up
Helsing which develops AI software for defence
applications. As a notable intergovernmental ini-
tiative, the NATO Innovation Fund (NIF) – backed
by 24 allied nations and equipped with EUR1 bil-
lion – further illustrates the growing institutional
focus on defence tech, with prominent venture
capitalist Klaus Hommels (Lakestar) serving as
chair of NIF’s board of directors.
Due to the European Commission’s ve-year
plan to streamline regulations and accelerate
investments, an instrumental step in attracting
capital for nancial services has been taken. The
so-called “Omnibus” package covers, inter alia,
far-reaching simplications regarding ESG regu-
lations, and aims to reduce the regulatory bur-
den on businesses and thus enhance the EU’s
global competitiveness.
Moreover, the movement toward onshoring
high-tech manufacturing is in full swing. Devel-
oped country jurisdictions globally are striving
to reduce their dependence on global supply
chains, opening up new and domestic invest-
ment opportunities. FDI regulations play a criti-
cal role for countries pushing for onshoring by
incentivising foreign companies to invest in local
production while safeguarding national security,
fostering technology transfer, and supporting
economic growth.
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11 CHAMBERS.COM
Exit opportunities
Broadly, venture capitalists continue to see a
limited number of M&A exits, while hoping that
IPO activity could increase in 2025. Although
a widespread rebound in IPOs may take time,
there is cautious optimism – amid signicant
market concerns – that a re-opening could oer
a promising pathway for sizeable exits.
Even if the number of prospective unicorn IPOs
in 2025 may be limited, the VC market is expect-
ed to feel much-needed relief, because these
start-ups hold so much value. According to mar-
ket observers, 2025 may see IPO activity from
companies such as CoreWeave, Stripe (both
US), Klarna, Revolut (both Europe), Shein and
Contemporary Amperex Technology (both Asia).
For other VC-backed start-ups, the possibility
of mid-market or distressed buyouts may be a
more feasible and realistic exit option. As many
VC-backed companies nd growth to consti-
tute a currency in depreciation and start-ups are
grappling with a path to protability, bespoke
deal terms and features borrowed from private
equity (such as contingent consideration com-
ponents or purchase price withholding mechan-
ics) may be the sole viable option for many exits
to occur. Amongst competitors, share-for-share
transactions, often coupled with a cash compo-
nent, may serve as viable M&A alternative, albeit
not perceived by VC backers as an ultimate exit.
As a fading bull-market exit option which is
unlikely to be available to growth companies in
the near term, special purpose acquisition com-
panies (SPACs) are facing challenges such as
disappointing performances, structural issues,
and dwindling investor condence. A substan-
tial portion of the 600-plus SPACs that went
public in 2021 are approaching or have already
passed their business combination expiration
dates, resulting in liquidation without complet-
ing a de-SPAC transaction. Since the beginning
of 2021, only 467 de-SPAC transactions have
been completed.
Evergreen funds
With the obvious challenges created by a lag-
ging market for liquidity events, distributions to
LPs and corresponding reinvestments, some
have suggested that the at least 200 evergreen
funds operating with an indenite investment
horizon in the VC space globally may be part of
the industry’s response to a shifting investment
landscape.
The evergreen fund space is expected by some
to grow as the industry tries to mitigate the
cyclicality of private markets – albeit subject to
regional divergences. The increased exibility
on the part of investment managers may, how-
ever, come at the price of signicant opportu-
nity costs if and when treasury yields are ele-
vated and assets locked in. The extent to which
open-ended investment funds will contribute to
addressing temporary market perturbances will
therefore be contingent upon the evolution of
LPs’ investment preferences, risk appetite, and
patience.
Expansion of the secondary market
Private secondary transactions have emerged
as a crucial component of the market, enabling
private companies’ shareholders to sell in the
absence of a liquidity event in order to gener-
ate liquidity for other investment opportunities or
personal nancial needs. The structuring of such
transactions has become more sophisticated as
it involves the handling of contractual restrictions
such as rights of rst refusal and, more recently,
involved tender oers to later-round investors.
Existing secondary investment platforms can
INTRODUCTION
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12 CHAMBERS.COM
open doors to diversication across dierent
industries, stages of growth and geographies.
In recent years, numerous successful growth
companies found themselves compelled to
remain private for extended periods. This con-
trasts with the dynamics that prevailed through-
out most of the 2010s, when the choice may
have been strategic and driven by abundant
private funding options. However, given dimin-
ishing exit opportunities at suciently attractive
terms, this decision has become less discretion-
ary in today’s market conditions. Especially for
early stage investors, secondary markets can
oer an attractive opportunity to exit their invest-
ment earlier than anticipated, which becomes
particularly pressing when the start-up experi-
ences substantial value appreciation prior to
reaching a stage where it either goes public or
becomes an attractive M&A target.
At the same time, substantial challenges remain,
especially concerning information disparity and
particularly on the buy side, where investor
demand and willingness to conduct due dili-
gence on growth companies may not be able to
adequately address existing supply at all times.
Buyers have been seen to anticipate steep dis-
counts regarding the net present value of their
investment objects. Nonetheless, liquidity in the
private marketplace has increased during the
past few years, facilitated by initiatives such as
Nasdaq Private Market, an initiative by the Lon-
don Stock Exchange that has facilitated more
than USD45 billion in transactional volume since
inception; Forge Global, that expanded into the
European market in 2024; and others.
The global marketplace for secondary transac-
tions grew from USD109 billion to a record high
of USD152 billion. Against this background,
some expect that discounts may become less
pronounced in the future or even cross into pre-
miums, leading to secondary purchases above
market value. This trend may exacerbate investor
hype for access to particular companies (such
as those in AI) and widen the chasm between the
top performers and lower-conviction start-ups.
Complementary nancing structures
With VC deal-making expected by many to
rebound in 2025, there is potential for a shift
towards a more coherent blend of equity and
non-dilutive nancing within the capital structure
of growth companies.
Globally, start-ups are facing an environment still
shaped by a non-negligible discount rate, making
debt funding an option that requires careful con-
sideration. However, as existing loans mature,
borrowers will likely seek renancing options
and placing reliance solely on equity nanc-
ing may not suce. Additionally, there is likely
to be a growing demand for non-dilutive debt
nancing in sectors requiring substantial capital
investment – for example, real estate, crypto-
mining, aerospace and space technology, as
well as clean energy and renewable technology.
Besides a persistent bid-ask spread between
investors and start-ups as to the valuation evolu-
tion of sophisticated private credit concepts, as
well as certain subsidised programmes (such as
that operated by the European Investment Bank)
have contributed to the increasing popularity of
venture debt which studies assess accounts
for as much as 15% of all venture capital trans-
actions in the US. Worldwide, venture debt is
forecast to reach a market volume of USD43.16
billion in 2025.
Anticipated rebound in VC deal-making in 2025
Notwithstanding persistent challenges in the VC
market and the struggles faced by many com-
panies in securing funding since 2021, VC deal-
INTRODUCTION
Contributed by: Carsten Berrar, Florian Späth and Heiko Blaut, Sullivan & Cromwell LLP
13 CHAMBERS.COM
making is anticipated to rebound to a certain
extent in 2025 and beyond.
Investors are hopeful that macroeconomic and
monetary policy conditions will provide for a suf-
cient degree of certainty, permitting a deploy-
ment of dry powder and an exploitation of back-
logged opportunities due to a lack of activity
since 2023. On the other hand, pressures to nd
exit opportunities exist, as LPs are yet to realise
capital inows often perceived as overdue and
the number of exit candidates with signicant
valuations has been growing.
VC investments in AI, in particular, can be expect-
ed to further outpace investment in all other sec-
tors – even though the focus may broaden into
a wider range of sub-sectors including industry
solutions and AI-enabled robotics. While the
development of crypto, ntech or cleantech are
highly contingent upon broader macro trends,
industries such as defence tech and cybersecu-
rity will likely continue to attract interest from VC
investors against the background of geopolitical
tensions.
Market observers believe that there will not be
a return to the heady days of 2021, as start-ups
and investors act with more discipline going
forward. Nonetheless, growth companies and
the VC industry will most likely be key drivers
behind many of the breakthroughs and innova-
tions of the 21st century and a shaping force for
the long-term fate of the global economy.
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