Venture Capital Predictions for 2025: AI, M&A, and Liquidity

So for the venture capital podcast, we want to focus on what are our 2025 predictions?

Happy New Year.

I'm going to listen and not judge because most of. I think, because Peter is just far deeper than here in the weeds than I am. I think the biggest things I've seen right now. And I'll maybe, maybe I'll go first.

You go first, John.

I think everyone is pitching AI agents. For example, can I mention this? I met someone today who worked at a social media site that all of us have used.

TikTok.

No. That created a tool that very affluent business people tend to use.

Okay. LinkedIn.

And he was pitching the idea of like an AI agent for business idea feedback.

Okay.

And maybe I'm just not the smartest person in the room. I just feel like this, Mark, like everyone is pitching a chatbot for a particular space and they're also doing it where they're not sitting on a unique data set that no one else has.

Yep.

And it blows my mind that the people who I think are incredibly intelligent are going this down this rabbit hole. So my prediction is that this is going to be burnt over land and I think chatbots will just be features of tools that especially have clients or data and this whole frenzy is going to end.

I do think that in 2025 you're going to start to see a lot of AI wrapper companies get washed out by the big LLMs and by incumbents who to your point, have unique data sets and they have customer base already. I think you've had a lot of companies pop up. They grow super fast because they're doing something super compelling. And I think 2025 is when the incumbents start catching up and start stealing back those market. The market share and those, those startups that were flying high and fast are going to start hitting walls. So I agree with you on that prediction. I think we'll see the start of it. I don't think we'll see the end of it. But you know, it's like chat GPT. Every time OpenAI comes out with a new version, new set of features, whatever, they wipe out a whole slew of startups. And I think that's only going to accelerate as XAI and Gemini and Claude all start catching up and doing Sarah same. And Apple and Google, well, Gemini is Google. Apple is now built on, but natively.

Building it into their laptop. Like Microsoft building it to the laptops, into the os.

Right.

Apple building it into their os.

Those are the incumbents. Right. They're now successfully deploying AI within their own apps and putting everybody else out of business. Out of business.

So these, these people who are like, hey, we're doing a million ARR. I'm just like, be grateful that you have it while you have it.

Yeah. Cut all your costs and pocket the cash as fast as you can.

Which happened to me. I built a business that did about a million in revenue and then Facebook pulled the rug out from underneath us and the whole Cambridge Analytica data privacy stuff.

Yep.

And I was just like, build, build, build. We can, we can, we'll build something. Because, like, we saw tremors of, like, maybe this isn't as stable as we thought. So we were trying to diversify our risk and we were going guns a blazing. You just, you just can't out outpace someone like, like OpenAI, which may be the first company that raises a trillion dollars.

Yeah. Well, this is the risk of building on someone else's platform ultimately. Right?

Yep.

You just, you don't control your future and you face existential risk at any moment.

So that's my, my first prediction. My second prediction, Lina Khan will be leaving the ftc.

Okay. And what will that mean?

I think that is going to drastically open the M and A markets.

Yep.

So there will be a ton of IPOs, there'll be a ton of liquidity. I think it'll create. I think we've had a start.

Why do you think M and A markets will open IPOs?

Because if you're Facebook, you were able to buy Instagram and you're not able to buy anything else. And I think the markets will open enough that even Facebook or Meta now will be making significant acquisitions which will help their future roadmaps that will help product teams.

The only, like, question mark there is that Trump was also very tough on antitrust and M and A, so I don't know if that entirely opens, but I do think he will be more positive towards it this term than he was his first term and much more than. For no other reason. Yes. If for no other reason, though, then every single big tech player is coming to kiss the rings of Donald Trump. Right. You know, so. And I think they have his ear on a lot of issues, Elon Musk in particular, obviously. So, yeah, I agree. I think the M and A environment will. Will improve. And just as liquidity starts moving through the market again, that will give people more confidence. IPO markets will hopefully open. I am cautiously optimistic that, like Q2, Q3, we start seeing some major liquidity movement, because, I don't know, like half My portfolio could go public or get acquired tomorrow if the markets were open for them.

That'd be amazing.

And, and like I'm just a tiny little fund in Utah. Right. Like how many other funds are sitting on same and similar situations and portfolios?

I think there's still going to be a big trend towards AI investments, just not as much and it'll be true AI tech plays that I think will be interesting and I think part of that is companies that aws, Amazon Web Services could integrate. I think there'll be a lot more investment in those spaces and then AWS and Google Cloud will be buying those companies.

Yeah, I agree. I think there will be a lot of like the most interesting plays will be in AI infrastructure more than anything else. Not the underlying, not, yeah, not, not the customer facing apps, but more the back end that for like cybersecurity, for cloud, for you know, analytics, like all of that stuff that, that are the tools that make it all work. Right.

I think there's, there will be a big push this year where VCs are trying to help build their portfolios and help build the company. So it's. No, it'll still be the trend of hey, we're not just writing a check. It's we add value in X way. We add value by helping you expand to Central America. We add value by, we've got, you know, AI experts.

And how is that different from today?

I think that trend will continue.

Okay, so just more and more like 19.

I think that trend should end, but I think it'll continue.

So why do you think it should end? You don't think VCs should try and add value to their startups? Or are you in the camp that like every time a VC tries, they're actually destroying value?

So here's my belief. When you are a founder in a market, you will learn a lot. But when you're out of that market for 2 years, 3 years, 4 years, 5 years, the world changes incredibly fast. And if you're trying to give feedback on more than just basic principles, I think it becomes really, really, really tough.

But I think firms that are really smart about this, they don't put partners on the board that are supporting the portfolio companies from their own experience outside of the areas where they have true, relevant, up to date experience. Right. Like I've always said and believe strongly that as a board member and advisor to a company, you should be very careful and have clear boundaries about where you give guidance and feedback. Because entrepreneurs will give the things you say more weight than they probably deserve. And conversely, if you're a founder, you should listen to your VCs when they're talking about things that they, that are, like, relevant. So when it comes to, like, valuation of your company and how much you should raise and what metrics matter and where those metrics need to sit and things like that, you should pay attention. Because those VCs, that's what they're hearing and seeing day in, day out, tons of deals all the time. When it comes to, like, what's the best sales motion. Yeah, maybe not. Maybe you don't listen to them for that.

Like, I think the VCs are valuable first, if a VC can help you raise your next round and they have a track record of demonstrating that, or they can help you get acquired, that's one place where I think they definitely should get involved and where you should pick one VC over another.

Also, if they can introduce you to potential hires, customers.

That's the second point. I think more in the recruiting space, it's far easier. I think it's far easier for a VC to say, hey, we help all of our portfolio with recruiting versus we can help you open up your, like a sales playbook.

Yeah, well, what I was gonna say is I think the firms that are doing this really well, they have the partner who sits on the board, who maintains fiduciary responsibilities, and then they have a huge team. Right. Andreessen Horowitz is the classic example of this where they have a huge team of experts and they're experts in real time. Right. That are helping companies with marketing and sales motions and recruiting and all kinds of stuff. And the advantage they have, particularly a firm like Andreessen, is they have such a huge portfolio that they can start pulling interesting data, trends, insights, things that are working across the entire portfolio to help individuals. No, but I guess my point is, like, I think there's a good way to do it. Right. And a bad way.

Okay.

And look, I also don't think you have to be Andreessen to win ultimately. Right. You look at like, benchmark. Benchmark is just a handful of partners. That's it. No junior staff. I mean, I think they maybe have some assistance, but that's about it. And they're a great top performing firm too. Right? So. But yeah, a lot of ways to add value. And so your prediction is that VCs will continue to focus on finding ways to add value, differentiate their capital from others, because capital will become a commodity, continue to, on its, you know, downward trend, march to being a commodity.

Unless you're the top 5% of their deals in their portfolio. That's just, it's not going to matter.

To you as a vc.

As a founder.

As a founder. I'm not sure I followed that one.

If you're not at the. If VCs double down power law, so they double down, we think their wins will be. So if they invest in you and they don't think you're going to continue to follow that trend, they're going to quickly drop off. And so the, the value they may sell you on probably won't continue.

Yeah, that's true. Although, like, you do have some VCs that are like, you know, you spend most of your time on the, the problem children in your portfolio, even though you know that they won't drive the returns because it builds the credibility and reputation you need to win the deals that do matter. So I don't know. There are different ways to differentiate your capital.

I think for if you're trying to raise right now, it'll continue this year. It'll be. It'll take longer to raise.

Okay. You think it'll take longer to raise this year than 20 than last year?

I think about the. About the same. Or longer. I think.

Interesting. I think it'll be shorter. I think people will start opening up their pocketbooks more.

I think they'll open their pocket. It depends on how fast the acquisition, the IPO market warms up.

True. I mean, yeah, it depends. If we start seeing a bunch of liquidity and people will start generating more confidence, I would expect us to see higher velocity of deals.

And so this is why I think it'll take longer this year. I think it'll speed up the following year because up until this election, until November.

Yep.

No one had confidence in knowing what was going to happen. And if you're going to go on an IPO roadshow, that's a huge investment. So based upon the risk, I think everyone was staying firm and. And they will have to start preparing, recruiting the PR firm, recruiting the law firm, recruiting the ipo, you know, however, whatever strategies they go for. And Those typically take 12 plus months to execute.

Yep.

So people are probably starting to move now, but it won't the soonest. It'd be what, you know, end of Q, you know, beginning of Q4, and most likely, I think Q1 or Q2 of next year.

Yep. Okay.

So I think Q2 will be a good year for IPO or 2026 will be a good year for IPOs. And things will ramp up like filevine could go for an IPO. LucidChart. Lucid. Maybe could go for an IPO in Utah, but again, it'll take time to make that happen. So it won't.

But they could go out Q4, but. Yeah, no, I agree. I think we'll start to see IPOs. And I'm hoping that the IPO market will open around Q2 because there are companies like Turo where we're an investor. They filed their S1. This is all public. Like they could go public tomorrow. Theoretically, they've done all of this stuff. Right.

I think more and more will do it. Q4 to Q2.

Yeah.

Q2, 2026.

Yep. And that's not a prediction on when TURO will go out. It's more just a statement that like.

And it partly takes, I think the, the change in attitude will speed up investing now, but I also think it also takes time for that, the cash to go through the system.

Mm, yep.

I think if you were trying to raise in the last couple years, it's really, really hard. And so everybody, it'll take time for that cash to be able to come in for funds to raise like fund three, fund four, fund one, whatever it is. So these things just take time.

What do you think? Do you think the funds that raised three years ago are gonna be able to raise another fund? First time fund managers?

I think the prediction I made last year is that 50% of funds would turn into ghost or dormant funds and never raise again.

Yeah. You stand by that?

Absolutely. Do you?

Yeah, I think so. I think there this year will be a big fundraising year for VCs, but it will mostly be concentrated at the top and in managers with decently long track records. And there will probably be quite a few LPs that. Well, there will be a lot of LPs that just pull out of the space because they got burned. So first time you know, entrance into the vc, LP world probably pull back, which is kind of unfortunate because this is probably a good time to be investing. And then I think there will be others that, you know, they kind of hold their nose on 2021 vintage funds that have a long track record of producing good returns before that and basically say 2021 was an anomaly. We're still, we're still ponying up more cash into these. And I think that's driven largely because there's a lot of momentum that's hard to slow down. A lot of the people that make these decisions, it's not really their money. They're just, you know, a custodian of it and you don't lose your job for invest, you know, for buying IBM kind of mentality, which I've heard from a lot of people, right. It's like, well yeah, like KKR's newest fund's not going to perform that well, but like kkr. So we're just, you know, we're going to write a check and I think you'll see, you know, you'll continue to see that. I don't think that changes much, which is kind of unfortunate because there are a bunch of funds, first time fund managers that were doing really interesting things that you know, that were bringing like real diversity of thought to the space and those, those are going away. What other predictions you got?

I think that's all my predictions. I'm curious what your predictions are.

Yeah, I think we covered a lot of my predictions already. I think that on the AI front you'll see like true establishment of the big LLMs that are ultimately going to win. My prediction is that it's probably the ones we all know which is OpenAI, Gemini, Xai and Claude. And I think a lot of the others that are out there kind of trying to build something will kind of go to the wayside, get acquired, could get acquired, it could just go out of business. I think the thing that will be the true differentiator going forward will be your ability to have compute. And the reality is like the hyperscalers have compute access and ability and a few players like OpenAI through their partnership with Microsoft have access to that. So I think that'll be like a big distinguishing factor is who has access to compute, to train models, run inference, et cetera, et cetera. And then I think the other big one will be distribution and who has best distribution. Part of the reason why we invested in OpenAI was because they had signed partnerships with not just Microsoft, but also Apple and, and Samsung. And you know, they are the brand, right? Everybody thinks of OpenAI when they think of AI and so they just have incredible distribution because of that. And that I think will allow them to, to win or be a winner. And I think that's also going to be the same case for Google. They just have insane distribution. And I think who else have we got? Xai. So xai I think is going to be building some incredible models because Elon is just a wizard at finding incredible talent and they're already catching up to these other players have been working on it much longer and they're doing some really compelling things really fast. And so I think he'll have a really compelling model. And then he has distribution from his, From Tesla, from SpaceX, from Twitter or X. So I think he's kind of checked the distribution box there and Claude is a little more, you know, a little more nuanced. I would worry a little bit about Claude from a distribution perspective. You know, I think their models are great. So no knock on the models. And I think they are aggressively trying to build stuff that makes sense for businesses in a way that is unique and differentiated. And I think it's TBD if they'll be able to ultimately pull that off and be differentiated enough that people select them over the other large players. But yeah, that's my guess is, or my prediction is that we'll, we'll see us kind of consolidation of who the big LLMs are. I also think like agentic stuff will, will be a big core driver of 2025 and all of a sudden we'll start being able to use these AI models to do really interesting things. So OpenAI just announced that they have launched some agentic features such as the ability to set reminders and schedule things. I think the next step will be watching these platforms start building lots and lots of webhooks and APIs and so forth. With all the other apps out there that allow you to now just say, hey chatgpt, schedule a lunch with me and John on my calendar and email both of us and find the time that makes the most sense. Right. And be able to do that. And like that's just a simple thing. But you'll see. I think you'll see like tons and tons of applications like that come up in 2025 that will be like really meaningful. I think that we are going to keep riding up the wave of anti wokeness.

Okay.

But I think we will hit a peak.

You think we've already hit the peak.

What? Oh, you're talking about Anti Wokeness, not Anti Wokeness. Yeah, yeah, I think it's going to. The Anti Wokeness movement is going to increase. Right. So Facebook announced, or Meta announced that like they're getting rid of their DEI initiatives. Elon Musk has come out very strongly for a while now against dei. And so I think you'll see more and more and more of that. You'll see people that feel like they're now liberated to say all kinds of ridiculous things. And I think that will increase to a point. But it wouldn't surprise me if we start to see a backlash against it by the end of the year. People just, you know, like okay, maybe, maybe we don't agree with like 100% with wokeness. We also don't agree with racism and discrimination and those types of things. So I think there'll be like a little bit of a pendulum swing by the end of the year. But in the meantime I think there's going to be a lot of things that are a little shocking that happen because of that. And like I said, like we said, I think I'm cautiously optimistic that 2025 is like a great year for tech. There could be more companies raising money, hiring. I think we'll see the rest of the kind of flush out of companies that were overfunded at too high evaluations that will all get settled out this year, you know, finally. I think most of it's already been taken care over the last two years. But you know, I think by the end of this year, like that will kind of be behind us and I think that will also be super important because it will be kind of the, the burning down part of the forest that enables, you know, new trees to grow. I was talking to a mutual friend of ours a couple nights ago and he was like, he's like, it's, it's sad when, when companies collapse, he's like, but the flip side is when they collapse, especially like big players that were overfunded and just throwing money at people, they start going through big layoffs and that talent now can go. And freedom, yeah, they can, they're free. They can go do other things that are more innovative and productive and interesting and so. And startups can all of a sudden start to be able to afford these people, which, which is super beneficial. So I think we are already seeing that. I think we'll see a little bit more of that. And I think as people get confidence that now we have a president, whether you like him or not, there's some confidence in what's happening and that conf. What will happen. And that confidence will lead people to invest more, spend more, start companies, those types of things. So, you know, we're already starting to see this. Like the last several years have been really slow. There just haven't been that many interesting new things coming up. There have been some, but not as much, I would say as pre2020. And now I'm starting to see more and more and more like interesting stuff come to market and I think that'll accelerate. Yeah, I also think the one area of AI that will be interesting is I think we'll start to move away from AI wrappers as the interesting Investment opportunities. So we already talked about infrastructure, AI infrastructure as being an interesting place to invest. I think this year is the year that we'll start to see really interesting businesses that build products that were not possible before AI. So there are no incumbents in the space and they're doing something like truly new and unique. And maybe they are built on some of these other larger LLMs, but that's not the thing that makes them unique and special. It's the other, the other things that they built on top of it. So maybe it's an edtech company, right, that provides AI solutions for schools. It's not the AI that makes it special. It's all of the stuff they put in around like protecting students and creating a great experience and integrating with all the tools and everything else that matters. And I think those types of businesses will be really interesting. And I'm really excited to see what comes to market because I think we're going to start to see some incredible companies that, you know, like when mobile, when mobile and social hit the market, it enabled all of these cool companies like Uber and Lyft and to a certain extent Airbnb and a bunch of these companies, and that it just wasn't possible before we all had smartphones in our pockets. Right. And I think AI will achieve like a level of adoption and capability that it'll start enabling kind of this new wave of really interesting startups that today I don't think we've seen. I think everything we've seen is just like an iteration off of ChatGPT. Okay, so we'll start to see some of those pop up and my guess is like the next big multi hundred billion dollar company, you know, will get founded in probably this year. Okay, which one will be, or maybe it was founded last year, but you know, it's kind of in this time frame.

Have you seen it?

I don't know. I don't think so.

Okay, tell your students to get. Get busy.

Get busy. Anyways, those are my predictions. There's probably more, but that's a good episode.

Anyways, 30 minutes of predictions.

Tell us in the comments what you think. What are your predictions for 2025? Do you think we're totally off base on any of these? Love to hear what you think. Thanks for joining us.

All right, see you guys next time.

Here's for, here's for a great 2025.

All right, bye.