Series A is Being Squeezed, Late-Stage is on Fire : The VC Landscape in 2025

Yuli Shein
May 17
4 min read

Updated: May 19

The venture capital landscape in 2025 is marked by a stark dichotomy: early-stage startups, particularly those seeking Series A funding, face significant challenges, while late-stage companies, especially in the AI sector, are experiencing unprecedented investment surges.

🚫 The Series A Squeeze: A Bottleneck for Emerging Startups

In Q1 2025, early-stage VC funding dropped to $24 billion, marking the lowest level in over five quarters (Crunchbase News). However, the decline is especially sharp in Series A rounds, which are experiencing a growing bottleneck.

Unlike pre-seed and seed rounds—where capital still flows to promising teams and early traction—Series A investors have raised the bar significantly. Startups are now expected to present:

Clear product-market fit
Sustainable revenue (often $1M+ ARR)
Robust unit economics
A well-defined path to profitability
And in some cases, even positive cash flow

This shift reflects a broader investor mindset change: from belief-based bets to metrics-driven funding. As a result, many promising startups are stuck in a funding gap—too mature for seed, but not yet “de-risked” enough for Series A.

This "Series A Squeeze" is becoming a critical friction point in the startup funding journey, threatening to stall innovation unless founders adapt or find alternative financing paths.

🔥 Late-Stage Funding Frenzy: AI Startups Attracting Mega Investments

While early-stage startups continue to face headwinds, late-stage funding is booming. According to Crunchbase, global late-stage investment hit $81 billion in Q1 2025—a staggering 147% increase year over year. This surge is fueled by blockbuster AI deals, led by companies like OpenAI and Perplexity AI.

OpenAI raised $40 billion in a round led by SoftBank, pushing its valuation to $300 billion. This is the largest private funding round in history, accounting for more than half of all U.S. VC activity and one-third of global venture funding in the quarter.
Perplexity AI, an AI-powered search engine, secured $500 million in a round led by Accel, boosting its valuation to $14 billion—up from $9 billion just six months earlier. It’s the company’s fifth raise in 18 months, showing just how strong investor appetite is for next-gen AI.

These milestones reflect growing confidence in mature AI startups that have both traction and scalable business models.

🧠 Sam Bankman-Fried's Investment Approach: High Risk, High Reward

Sam Bankman-Fried (SBF), founder of FTX and Alameda Research, took a bold and aggressive approach to investing—one that sharply contrasts with today’s more cautious venture capital environment.

At the heart of his strategy was the “Power Law” of investing: the idea that just a few big wins can make up for many losses. Following this belief, SBF made large bets on early-stage startups, hoping a handful would deliver massive returns. He ended up investing in around 500 companies, including notable Israeli crypto startups like StarkWare and Solidus Labs.

But this fast-paced, high-volume investing came with downsides. SBF often skipped standard due diligence and investor protections. For example, FTX raised $2.3 billion across just four funding rounds in one year, selling 6% of the company to roughly 150 investors—many without the usual safeguards.

His investment decisions were also guided by his belief in “effective altruism”—a philosophy focused on earning as much as possible in order to donate it to impactful causes. This drove him to take even greater risks in pursuit of fast wealth accumulation.

Ultimately, the collapse of FTX and Alameda Research revealed the dangers of this unchecked approach, underscoring the need for thorough due diligence, investor accountability, and sound corporate governance.

💡 Navigating the Divide: Strategies for Startups and Investors

For early-stage startups:

Build strong business fundamentals: Demonstrate clear market demand and a focus on profitability.
Adapt to investor expectations: Provide data-driven evidence of product-market fit and growth potential.

For investors:

Focus on late-stage companies: Identify firms with robust AI integration and market traction.
Assess risks carefully: High valuations in AI startups come with significant performance expectations.

🏢 Microsoft's Strategic Shift: AI Overhead and Workforce Realignment

In May 2025, Microsoft announced layoffs affecting approximately 6,000 employees, nearly 3% of its global workforce. This move primarily targeted management roles and software engineers, reflecting the company's strategic pivot towards artificial intelligence (AI) investments.

Notably, CEO Satya Nadella highlighted that up to 30% of Microsoft's code is now generated by AI, underscoring the company's commitment to integrating AI into its operations.

The layoffs are part of Microsoft's broader effort to streamline operations and reallocate resources towards AI development, including significant investments in OpenAI and the integration of AI technologies like Copilot into its product suite. This shift exemplifies a growing trend among tech giants to prioritize AI capabilities over traditional workforce expansion.

🚀 Perplexity AI: The Next Big Bet in AI Search

Perplexity AI, an emerging player in the AI-powered search engine space, has secured a $500 million funding round, achieving a valuation of $14 billion. This significant leap from its previous valuation of $9 billion in December 2024 highlights investor confidence in Perplexity's potential to disrupt the search engine market .

The company's innovative approach to AI-driven search, combining large language models with real-time web data, positions it as a formidable competitor to established players like Google. Investors are betting on Perplexity's ability to capture a substantial share of the AI search market, which could yield significant returns if the company secures a leading position.

🐅 Tiger Global Management: Strategic Investments Amidst Market Volatility

Tiger Global Management's participation in OpenAI's recent funding round signifies a strategic move to align with transformative technologies amidst a challenging investment landscape. The firm's investment in OpenAI not only diversifies its portfolio but also positions it to capitalize on the burgeoning AI sector's growth .

Previously, Tiger Global faced setbacks with its $12.7 billion megafund, experiencing losses due to market volatility and underperforming investments. However, its stake in OpenAI has provided a cushion against these losses, demonstrating the firm's adeptness at identifying and investing in high-potential ventures.

This strategic pivot towards AI investments reflects a broader trend among venture capital firms, emphasizing the importance of adaptability and foresight in navigating the evolving technological landscape.

📊 Conclusion: Navigating the New Funding Landscape

The venture capital landscape in 2025 presents a stark contrast: while early-stage startups grapple with funding challenges, late-stage investments, particularly in AI, are thriving.

However, the rise of AI tools offers early-stage founders a silver lining. By leveraging AI, startups can achieve significant milestones with lean teams and minimal capital, making them more attractive to cautious investors.

This shift underscores the importance of adaptability and strategic use of technology in navigating the evolving funding environment.