Investment Outlook
Late-stage venture capital includes investments that occur once a company has developed a viable product or service, demonstrated market fit and are in a scaling and execution phase. Considering that late-stage venture companies tend to be larger and more mature compared to early-stage, investments in these strategies tend to be more concentrated and returns can be more tightly tied to exit activity.
Venture capital strategies have faced recent headwinds, including a sluggish exit environment. In addition, late-stage strategies have been increasingly linked to mega-deals, due to record investments in artificial intelligence (AI).
The absence of a sustainable increase in exits has kept a lid on value realization with total exit value still below 2018 and 2019 levels, as seen in Exhibit 1. A growing inventory of larger investments is locking up capital, particularly for late-stage strategies. According to Pitchbook, venture portfolios hold a total of $4.0 trillion in start-up value, more than double 2020’s market value of $1.7 trillion.
In absence of IPOs, M&A is playing a larger role with exits. However, a growing majority of acquisitions are occurring in early-stage deals. In 2023 and 2024, 89% of acquisitions occurred prior to Series C round, compared to an average of 78% from 2014 to 2019.1 To see late-stage strategies return to a healthier cycle of fundraising, distributions and new investment, an increase in exits to release trapped value is a key catalyst.
Please see Additional Information at the bottom of this report for definition of early and late-stage venture capital.
Recent Market Trends
Slow deal and exit activity have been a challenge for all stages of the venture capital industry over the last few years. This can be a bigger issue for late-stage venture as exits in these strategies are tied to larger transactions which are difficult in a slower deal environment. According to the PitchBook NCVA Venture Monitor report, exits of $500 million or more accounted for 4% of all exits but accounted for 79% of total exit value in 2024. Further, there are more venture-backed companies valued at $500 million or more than ever, highlighting the trapped value that is sitting in larger, harder to exit VC-backed companies.
Late-stage venture strategies have been increasingly tied to outsized deals, which have been influenced by the opportunities in AI. But the concentration of these investment opportunities in select funds suggests that not all investors will benefit until the market sees broader deal and exit activity and/or or the number of large exits increases. A barometer for large exit activity is the health of the IPO market. While IPOs represent the smallest volume of exits, averaging 8% of all venture exits over the last decade, they are typically the largest exit for venture firms.2
Industry Focus: Artificial Intelligence
Venture investment in AI companies has increased seven-fold in two years to $59 billion (Exhibit 4). This compares to overall venture capital investment that has been flat-to-down over the same period. Across AI, outsized deals have been the main driver of total investment and valuation, arguably providing an inflated sense of health for late-stage strategies.
In looking at just large financing rounds ($100 million-plus) that occur in later-stage venture, average deal size increased in both 2023 and 2024 to $351 million in 2024 (Exhibit 5). This increase was significantly influenced by AI which, according to Crunchbase and EY, accounted for 44% of all VC investment and six of the top 10 deals in 2024.
Given the early stage of the AI revolution – and wide scope spanning computing infrastructure to software – many expect AI to continue to influence the venture market for years to come.
Large deals drive the most exit value and rely on a cooperative IPO market. However, the race for AI technology and talent has also led to large acquisition exits and other non-traditional deals where established technology companies aim for a partnership approach. AI exits will be a key for late-stage strategies given that companies can stay private for longer without compromising valuation. From an investor standpoint, manager selection remains critical due to the concentration of top-tier venture firms, and the reward that comes with this.
Performance Snapshot
Endnotes
- PitchBook, “Q4 2024 PitchBook-NVCA Venture Monitor”, January 13, 2025.
- PitchBook, “2025 US Venture Capital Outlook”, December 16, 2024.
Additional Information:
We define Early-Stage Venture as companies in Series A or B of financing; and Late-Stage as Series C or D.
Performance Snapshot, Exhibit 6: Venture - All proxied by Preqin Venture Capital Index. Late-Stage Venture proxied by Preqin Venture Capital Late-Stage Index. Early-Stage Venture proxied by Preqin Venture Capital Early-Stage Index. Global Equity proxied by MSCI ACWI Total Return Index.
Index Definitions:
Preqin Venture Capital Index: The index covers over 14,000 closed-end funds captured in the broader Private Capital index including funds/strategies listed as Early Stage, Early Stage: Seed, Early Stage: Start-up, Expansion/Late Stage, Venture (general), as defined by Preqin
Preqin Venture Capital Early-Stage Index: The index covers closed-end funds captured in the broader Private Capital index including funds/strategies that invests only in the early stage of a company’s life defined either as Seed or Start-up, as defined by Preqin.
Preqin Venture Capital Late-Stage Index: The index covers closed-end funds captured in the broader Private Capital index including funds/strategies that invests in companies towards the end of the venture stage cycle, as defined by Preqin.
MSCI ACWI Index: MSCI’s flagship global equity index is designed to represent performance of the full opportunity set of large- and mid-cap companies from developed and emerging markets around the world.
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