Bagchi Law maintains a close and constant eye on macroeconomic trends, both globally and domestically. Take a look at what the reports are saying heading into Q4, 2025.

Let’s first refresh what our projections were at the beginning of the year:

     HOW THE MID-YEAR CHECK COMPARES TO EARLY-YEAR PROJECTIONS 

1. Deal Activity & Volume

• Earlier projection (spring 2025):
  Expected fewer deals but more concentration of dollars into mega-rounds (especially AI, late-stage). The “Series-A crunch” was highlighted as the bottleneck.
• Now (Q2–Q3 actuals):
  Carta and Cooley data show the opposite in part: deal count rose in Q2 (more rounds signed), while average checks shrank at A/B/C. So instead of concentration, we’ve seen more, smaller deals—though still with huge AI outliers (OpenAI, Anthropic).
• The “Series A crunch” remains real (lots of seed bridges), but there’s more activity at earlier stages than forecast.

2. Valuations

• Earlier projection:
  Expected capital discipline, with valuations holding flat or under pressure except for AI and defense.
• Now:
  Both Cooley and Wilson Sonsini show median valuations rising across the board, including Series B through D. Later-stage medians reached levels “not seen since 2021.”
• That’s a positive surprise: valuation recovery happened faster and broader than anticipated.

3. Terms & Protections

• Earlier projection:
  Predicted continued dominance of 1× non-participating liquidation preferences; participating to remain rare and mostly in down rounds; some increase in pay-to-play and structured protections.
• Now:
  Exactly borne out: 95% non-participating, participating <5%, but pay-to-play hit a record 10.1%. Participating shows up in ~20% of down rounds.
• This part matched projections closely.

4. Instruments at Pre-Seed

• Earlier projection:
  Expected SAFEs to continue creeping upward into larger seed rounds, notes lingering in med-tech/life-sci.
• Now:
  ~90% of pre-seed financings are SAFEs, often capped at ~$7.5M–10M, with discounts around 20%. SAFEs are now used for rounds up to ~$4M (vs ~$3M in 2024).
• Projection confirmed, but SAFE expansion has happened even faster than expected.

5. Sector Trends

• Earlier projection:
  • Favored: AI, defense/dual-use, climate infra, biotech.
  • Cautious: fintech, consumer.
• Now:
  • Favored: Exactly those sectors: U.S. H1 venture dollars ~64% tied to AI; life sciences deal count and dollars up; defense/industrial tech still strong; Nordic/EU infra also drawing capital.
  • Cautious: Fintech selective; consumer weak except AI-enabled or subscription models.
• The sector call was accurate.

6. Outlook for Q4

• Earlier projection:
  Anticipated cautious optimism for IPOs in late 2025, which would ripple back to late-stage VC.
• Now:
  Crunchbase reports multiple $1B+ IPOs filed/printed in H1–Q3, with more expected in Q4. The IPO window is opening sooner and stronger than predicted, which may ease late-stage financing pressure earlier.

Net Differences

1. More deal activity than projected at seed and A (not just concentration).
2. Valuations stronger than forecast—especially later stage, where recovery was expected to lag.
3. Terms & instruments largely as predicted (SAFE dominance, non-participating standard, participating rare).
4. Sector winners/disfavored exactly as expected.
5. The IPO/exit market reopened earlier than anticipated, altering late-stage sentiment.

Moving into the tail end of 2025, this is a detailed look at the macro-environment of funding and acquisitions.

U.S. Early-Stage (Pre-Seed, Seed, Series A)

Where Q2 landed — and what Q3-to-date looks like

• Deal sizes edged down even as more rounds closed. Q2 saw more new investments from seed through Series D than Q1, but with less total cash at A/B/C stages (–3% to –9% average check), with seed an exception due to one very large outlier. Early-stage medians hit new highs: Series Seed and Series A median valuations were the highest on record. 
• Market concentration persists. Rising pre-money medians across series and continued concentration of dollars in larger hubs and mega-rounds. 
• Softening in August, but U.S. still dominates YTD. August 2025 saw the lowest monthly global total of the year; the U.S. still accounted for 61% of worldwide venture capital that month. 

Terms & instruments (what actually showed up in documents)

• Liquidation preference: 98% of priced deals at 1× liquidation preference and 95% non-participating, confirming non-participating as the norm. Pay-to-play ticked to a series-high 10.1%. 
• Participating shows up mostly in stress. Participating liquidation appeared in 20% of down rounds in 1H25 (still far below 2022–23). 
• SAFE vs. notes at Pre-Seed: U.S. pre-seed funding was $822M (down from Q1), valuation caps rose at the smallest checks (e.g., $7.5M median cap for sub-$250k post-money SAFEs), and SAFEs/notes are now used up to ~$4M rounds—up from ~$3M in 2024. 
• Post-Seed: Bridge fundraising through post-seed convertible notes is still common, with the median amount raised increasing for the second quarter in a row. This demonstrates an increasing willingness of investors to participate in bridge rounds while post-seed companies navigate uncertain market conditions to work toward justifying larger preferred stock financings. Interest rates are lower (<=8%, rising 16% over 2024), but so are maturity periods (periods > 12 months decreasing 17% from 2024).  

Round sizes, valuations & “lead” checks (how big and who anchors)

• Seed: Q1–Q2 data on Carta: median seed pre-money ~$16M (Q1) and Series Seed cash spiked in Q2 (helped by an outlier). These levels imply typical priced-seed raises in the $3–4M range with ~15–20% dilution, varying by sector. 
• Series A: Median Series A raise ~$7.9M (Q1 2025) with valuations rising ~20% YoY by Q2. In practice, leads often target ~15–20% ownership at A, so anchor checks typically land in the $5–8M band depending on syndicate split. (Raise size and dilution datapoints from Carta; ownership target reflects common market practice.) 
• Sector-specific dilution: Healthcare rounds still dilute more (seed median ~20%, A ~21.8% in Q1), while the consumer sector showed lower medians (seed ~16.7%, A ~14.6%). Expecting that pattern to continue into Q4. 

What investors are underwriting now (milestones & growth)

• Pre-Seed expectations: credible team + MVP/tech demo, pilot LOIs, and ~18 months runway to first revenue or beta—investors increasingly accept convertibles up to ~$4M if milestones are crisp. 
• Seed expectations: early revenue or unmistakable PMF signals; for SaaS, many funds still underwrite ~60%+ YoY growth and sub-18-month payback. The “Series-Seed-to-A” gap remains: bridge seed rounds were elevated through early 2025. 
• Series A expectations: repeatable go-to-market (>$2–5M ARR in software or several enterprise pilots in deep-tech) and ability to 2× YoY into B under a ~24-month runway. (Aligned with Q2 counsel surveys and Carta raise sizes/valuations.) 

Which industries are favored (and which aren’t)

• Favored: AI continues to absorb an outsized share of U.S. dollars in H1’25 (Reuters: ~64% of H1 deal value linked to AI), with infrastructure (chips, data centers, agents) and applied AI in SaaS leading. Life sciences strengthened in Q2 (Cooley: life-sciences deal count and dollars rose; avg deal size $37.9M). Defense/dual-use and climate/industrial are also drawing more late-stage interest per NVCA and KPMG trend notes. 
• Mixed/softer: Fintech is selective (compliance-heavy and profitable models favored); consumer remains barbell—hit-driven and often smaller checks unless AI-enabled or subscription-heavy. August’s slowdown hit “non-AI” categories harder. 

Q4 outlook (what to expect rounding out 2025)

• Structure: Expecting 1× non-participating to remain the standard; pay-to-play and occasional participating clauses largely confined to insider down-rounds. 
• Pacing & sizing: Expecting deal count > Q1 carrying into H2; Carta shows rising medians at seed and A but smaller average checks—i.e., more rounds, leaner financing. 
• Exits as swing factor: A rising number of $1B+ IPOs by mid-Aug; a steadier Q4 IPO tape would ease late-stage risk and trickle down to earlier rounds. 

North Carolina snapshot (Q2–Q3 to date)

Deal flow & capital

• 2024 baseline: ~$3.2B raised by NC startups in 2024 (≈doubling 2023), forming a high base into 2025. 
• Q2 2025 geography: Most U.S. deal value clustering in major hubs, but NC remains an active secondary node within the Southeast. 

Pre-Seed/Seed instrumentation & sizes (local signals)

• Micro-checks & bridges: The Triangle Tweener Fund crossed $10M deployed into Triangle startups by Q2’25 (index-style: ~15 checks/quarter). Its public Q3’24 statistics (helpful for instrument mix) showed rounds: 42% priced, 37% SAFE, 21% notes, avg round $4.8M. 
• Non-dilutive: NC IDEA continues to seed the earliest stages (MICRO $10k, SEED $50k), with $10.3M+ cumulative SEED grants and $2M+ MICRO grants through spring ’25. 

Terms & expectations (align with U.S. norms)

• Locally priced rounds almost universally have a 1× non-participating; participating shows up only in challenged insider processes (mirroring national counsel data). Growth bars investors cite match national patterns: ARR $250k–$1M for seed raises; $2–5M ARR or enterprise pilots for A. 

Sectors favored in NC

• AI-enabled SaaS/fintech (Triangle), biotech/biomanufacturing (RTP) and digital health continue to draw capital; Tweener’s cadence and CED’s 2024 doubling underscore depth in these verticals. 

What to watch in Q4 (NC)

• More SAFE-based “seed+” extensions as founders avoid down-round optics, with priced A’s reserved for teams clearing revenue/traction bars. Expect continued grant + micro-VC stacking (NC IDEA + Tweener + local seed funds) to bridge to institutional A’s. 

A few international currents worth flagging

• Global Q2: Q2 global VC at $91B (+11% YoY, –20% QoQ), with capital concentrating in mega AI rounds. Europe was softer QoQ; early-stage remained comparatively stable. 
• Europe: Rising medians despite geopolitical noise; EIC and InvestEU continue to back deep-tech scale-ups (EU mobilizing up to €20B via EIC Fund by 2027). 
• India/Asia: India’s H1 funding ~$6.7B (Entrackr) with YTD down vs. 2024 at several trackers; deep-tech (space/semis/robotics) is a policy-backed bright spot. 

There is no broad-based exodus from the U.S. in venture, but there are pockets of reallocation where investors are putting relatively more money to work abroad, namely in Europe (AI and digital infrastructure) and the MENA region (Saudi/UAE venture ecosystems). India, contrastingly, has actually seen foreign outflows YTD on the public side.

Europe (especially France, the Nordics, and the broader EU)

• France (AI): ASML (Netherlands) led €1.3 B of a €1.7 B round into Paris-based Mistral AI, taking an ~11% stake and becoming its top shareholder—explicitly framed as boosting European AI capability/sovereignty. Co-investors included U.S. firms (a16z, Nvidia), but the lead and majority of the capital were European—an example of large AI funding not going to a U.S. company.
  • What is causing the shift? Tech-sovereignty goals, strategic industrial alliances, and the desire to build “non-U.S.” AI champions. 
• Nordics (AI data centers): Sweden’s EcoDataCenter secured €600 M debt from Deutsche Bank (after a prior €450 M Areim round; €1.8 B since 2023) to expand AI-oriented data centers (clients include DeepL; partnership with CoreWeave). Rationale cited: stable power grids, connectivity—infrastructure draws that are not U.S.-based. 
• Pan-Europe re-weighting (multi-asset, not just VC): Multiple flows reports show investors adding to ex-U.S. allocations in 2025 on valuation/currency/policy grounds (e.g., largest ex-U.S. equity fund inflows in >4.5 yrs in July), and “investors flock to Europe” given infrastructure & defense spending. While these are public-market lenses, they help explain why large corporates/VCs are also leaning into EU private markets, especially defense/AI/infra. 
• U.K. (FDI, finance/tech): U.S. financials pledged £1.25 B ($1.7 B) of fresh U.K. investments (jobs and expansions across London/Edinburgh/Belfast/Manchester). It’s not classic VC, but it’s incremental U.S. capital to the U.K. rather than the U.S. 

Net take: Europe is capturing headline, late-stage AI and digital-infra checks that, two years ago, might have defaulted to U.S. targets. The volumes are still small versus the U.S., but directionally meaningful in AI and compute infrastructure.

Middle East / MENA (Saudi Arabia, UAE)

• Saudi Arabia (VC ecosystem): H1 2025 VC funding ≈ $860 M, +116% YoY, leading MENA by a wide margin; reports highlight sovereign support and foreign participation. MAGNiTT and trade press call KSA the “top emerging market” magnet for VC in 2025. Sectors: fintech, logistics, AI, climate/industrial, often tied to national programs.
  • Why the shift? Sovereign capital depth, aggressive national strategies, and co-investment programs; foreign GPs cite LP access and government alignment as draws. 

Net take: A visible (if still modest in absolute dollars) reallocation of growth and late-seed/A checks to KSA/UAE—particularly for industrial tech, AI, fintech—driven by Sovereign LPs and policy programs.

India (not a 2025 “shift-to” on net flow)

• Despite strong GDP prints, foreign investors have been net sellers in 2025 on the public side (Reuters: –$11.7 B YTD outflows from shares and debt; also separate reports of investor caution as U.S. tariffs and earnings weigh). This doesn’t mean venture has collapsed, but it contradicts the idea that investors are reallocating away from the U.S. to India in 2025.
  • Why the hesitation? Tariff uncertainty, valuation concerns, and earnings pressure.

Net take: India remains strategically important for VC (especially SaaS, fintech, EV/semis), but 2025 cross-border flows aren’t showing a net rotation to India vs. the U.S.

What’s not shifting away from the U.S.

• U.S. AI remains the gravity well. Reuters tallies ~64% of H1 2025 U.S. deal value tied to AI; North America posted surging H1 funding despite harder VC fundraising. This argues against a broad reallocation away from the U.S. in venture. 
• Global venture totals show concentration, not migration. Crunchbase: Q2 global VC $91B (YoY up), but H1’s biggest checks still skew U.S. (OpenAI, Anthropic, etc.). Europe’s wins (Mistral) are notable but not yet a wholesale share shift. 

Sectors attracting the ex-U.S. reallocation

• AI (model & infra) in Europe: France (Mistral) and Nordic data-center builds (Sweden) on the back of power grid stability and capex finance. 
• Defense/industrial & fintech in MENA (KSA/UAE): scaling under sovereign strategies and regional digitization. 

Written By: Tyler Demasky of Bagchi Law 

Sources:

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