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The value of everything
19 Mar 2025
Insight
2024 proved to be a challenging year for venture and growth capital, with nearly 15% and 18% of VC deals in the US and Europe, respectively, being down rounds, where a company raises capital at a lower price per share compared to its previous financing round. With approximately half of the global population voting in elections, and significant geopolitical turmoil, 2024 was a difficult year for the markets generally but eventually moved away from its nadir.
There is reason for optimism, with global VC investment rising to the highest level in seven quarters in Q4 2024. After an extended lull, we think the venture and growth capital market is set for an exciting 2025, with high-growth industries across the board expected to see significant activity.
AI investment driving deals in 2024
The surge in AI-related investments was the dominant trend throughout 2024, with strong investment interest across the AI value chain providing opportunities for a wide variety of investors. According to UBS, AI investing can be broken into three key "layers", being:
- The ‘intelligence’ layer: companies turning computing and energy resources into intelligence, eg, those developing large language models.
- The ‘enabling’ layer: companies that provide the tools and infrastructure for AI development, such as semiconductor designers and manufacturers, cloud and data centres, and power supply.
- The ‘application’ layer: companies which embed the tools from the intelligence layer into specific use cases.
The record-breaking level of investment from venture and growth capital investors in the “intelligence” layer (such as Open AI, Anthropic and other LLM developers) was well publicised. The most prominent deal of the year was OpenAI's $6.6 billion funding round, which brought its valuation to $157 billion. China's continued focus on technology also saw strong investment into AI with two of China's "AI tigers", Moonshot AI and Zhipu AI, raising $1 billion and $800 million respectively.
Meanwhile, infrastructure and core-plus investors sought out opportunities in AI’s “enabling” layer, with the data centre sector experiencing a record-breaking year in 2024. M&A deal value surpassed $73 billion, with the acquisition of AirTrunk by Blackstone in December adding an additional $16 billion before the year closed out. South-east Asia, and Singapore in particular, also remained a hotspot for data centre activity with Day One Data Centers raising $1.9 billion and ST Telemedia Global Centres raising $1.295 billion in a KKR led round. (For more discussion of data centres and M&A, see our TMT and Digital Infrastructure piece.) Analysis by Morgan Stanley projects that power demand from generative AI will increase at an annual average rate of 70% through 2027. By 2027, GenAI power usage is projected to be nearly equivalent to Spain's total power consumption for 2022. We have already seen a surge in the use of small modular reactors (SMR), which are small scale advanced nuclear reactors, to meet this rising demand, with the UK government running a tender process to develop a fleet of SMRs in late 2024.
The “application” layer also saw significant activity in 2024, with capital raises from a large number of AI-native startups. We expect to see strong demand for AI-enabled health tech and energy tech opportunities assisted by global tailwinds such as the aging population, the increased wellness focus and the energy transition. Advances in AI have even energised the largely stagnant legal tech sector, as demonstrated recently by Harvey AI's $300 million Series D round led by Sequoia, Eve, an AI platform for plaintiff firms, raising $47 million in a Series A round led by Andreessen Horowitz and Luminance's $75 million Series C round led by Point72 Private Investments.
After an extended lull, we think the venture and growth capital market is set for an exciting 2025, with high-growth industries across the board expected to see significant activity.
Other sectors of interest in 2024 – Deeptech, life sciences, climate tech, fintech
In terms of sectors, it was a big year for quantum computing with several high-profile transactions including the approximate A$1 billion investment into PsiQuantum to anchor Australia’s global quantum hub in Brisbane, Q-CNTRL’s A$86m Series B and Quantum Brilliance’s A$23m raise.
The life sciences sector saw an impressive 22.6% year-on-year growth in Europe. The UK biotech sector alone raised £2.06 billion in VC funding across 2024, representing an approximate 65% year-on-year increase according to the UK Bioindustry Association. The UK also led Europe in VC investment in the space, attracting 37% of total VC investment.
While not as successful as other verticals, climate tech has demonstrated resilience in the face of political uncertainty and instability. Despite a 17% decline in global VC funding in 2024, investment in UK climate tech companies surged by 24% according to research by PwC. Climate tech accelerators such as Carbon13 and environmental prizes like the Earthshot Prize continue to play a vital role in discovering and scaling climate tech solutions, maintaining their importance within the UK's VC ecosystem. In Australia, climate tech and clean tech remained resilient, and was the second-largest sector by dollars invested in 2024, with total investment of A$609 million, according to Cut Through Venture.
Similarly, global fintech investment fell by 10% in 2024, but nonetheless the sector saw significant interest from markets. The US remained the largest global market, seeing approximately $22 billion in funding. Despite tough market conditions, the UK ranked second globally for fintech investments. Credit-technology company Abound's £800 million mix of debt and equity funding highlighted this continued interest in UK-based fintech solutions. Monzo, a leading UK digital bank, raised around £500 million, further cementing its position in the fintech space. In Australia, fintech retained its crown as the largest sector for venture investment, with just shy of A$1 billion invested in fintech startups in 2024.
Key themes from 2024
A key theme we saw globally in 2024 was the increasing demand for liquidity, with subdued capital markets and M&A activity. Later stage companies solved this problem through large scale secondary sale processes, where existing shareholders can sell their stake to an investor. This ensures the company meets the needs of those sellers (eg, founders, investors etc), while remaining in full control of its exit timeline. We expect this trend to continue into 2025, particularly for very successful companies, as early investors look to deleverage and crystallise some gains.
When it came to placing new investments, Australia pleasingly saw an uptick in international investors venturing down under in 2024. Although Silicon Valley funds have been deploying in Australia for well over a decade, it was the influx of interest from Singapore and other parts of Southeast Asia that stood out for us last year. We saw a significant amount of participation and leading roles from funds such as Peak XV, Prosus Ventures, Jungle Ventures and others, reflecting the maturation of the Australian market and an increasing regional focus.
In Asia, the venture and growth capital market was significantly impacted by geopolitical trends. A major theme in 2024 appeared to be the reallocation of capital with Japan, India and Southeast Asia being beneficiaries of the decline in inbound investment into China. Despite a challenging economic environment, China continued to attract significant VC investment, especially in AI, EV and autonomous driving. India saw quick commerce emerging as a hot sector with Zepto seeing three rounds of financing in six months. The IPO market in India was also a bright spot with an increasing number of start-ups exploring IPO exit opportunities.
Much like the position across emerging markets, the VC market in the Middle East fell in 2024 in comparison to the previous year. VC activity is anticipated to rise in 2025, and tentatively supporting this trend, Saudi Arabian buy-now-pay-later fintech, Tabby, recently raised $160 million in its Series E funding round. We have also seen foreign investor engagement in the region; recently Japan's Sumitomo (alongside regional investors Saudi's Wa’ed Ventures and UAE's Global Ventures) supported Zension Technologies, a consumer technology e-commerce company in its Series A funding round raising $30 million.
Outlook for 2025
Looking ahead in 2025, we expect a strong year for venture and growth capital, with the key drivers including favourable macroeconomic conditions, easing inflation and interest rate cuts. Improved confidence broadly should see a marked uptick in successful liquidity events, and we expect to see many high-profile unicorns execute on long-awaited IPOs, as well as a focus on M&A exits for many companies in 2025.
Key contacts
Chapters
- Global M&A Outlook 2025 – Sector and broader perspectives
- AI and M&A – What you need to know
- Automotive – Challenges remain
- Competition, regulation and trade – Regulatory focus on ‘killer acquisitions’
- Consumer – Still cautious
- Cybersecurity – Deal resurgence
- Energy – What you need to know from around the world
- Infrastructure— How to bridge the gap?
- Mining – The energy transition and demand for critical minerals continue to drive activity
- Pharma – Will 2025 be the year?
- Real Estate — Encouraging signs
- Tax – Change ahead?
- Tech Innovation – To buy or to collaborate?
- TMT and digital infrastructure — AI drives activity
- Venture and growth capital — Brightening horizons
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The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2025
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