Market turmoil fueled by funding scarcity, delayed IPOs, and AI boom: Root causes of current market instability
The IPO market has been experiencing a slowdown, primarily due to economic uncertainties such as persistent inflation, rising interest rates, policy uncertainty, and public market volatility [1][2]. This has also been compounded by the availability of large venture capital (VC) “mega rounds,” which allows companies to delay going public, reducing the number of IPOs [1].
However, private equity firms are facing similar challenges, with deal activity expected to remain slow due to market uncertainty [1]. The slowdown in new fundraising is due to funds struggling to generate returns, which is leading to a slowdown in new fundraising [1]. One of the biggest challenges for VCs today is the difficulty in returning capital to their limited partners [1].
Amidst this challenging environment, the startup world continues to find areas of growth. AI is a hot area, with many VCs focusing on AI startups where the technology is truly implementable and commercially viable [1]. The cost of micro-GEO satellites has dropped significantly compared to the old technology, creating a high-ROI opportunity [1].
In the VC world, approximately 33% to 35% of the deals that VCs invested in this year were AI-related [1]. Strong companies tend to rise to the top and find ways to secure funding, even in a difficult fundraising environment [1]. VCs are looking for AI companies that can scale, have clear customers, and solve real-world problems [1].
Interestingly, companies like Glean and Notion have seen a significant increase in valuation after rebranding to include "AI" in their identity [1]. This underscores the importance of AI in today's market and the potential it holds for startups.
The IPO market, however, remains frozen due to market uncertainty [1]. Yet, signs of recovery have begun in mid-2025, with an increase in IPO activity and capital raised compared to previous years [2]. Market data indicates more IPO filings and stronger IPO performance in May and June 2025, along with growing M&A activity and second-tier company listings suggesting a rebounding market [2].
The anticipated interest from major players and rate cuts expected to start may further boost IPO valuations, particularly in rate-sensitive sectors such as fintech’s buy-now-pay-later services [4]. The combined value of all venture-backed unicorns exceeds $3 trillion, representing an incredible runway for future IPOs [1].
Despite the challenges, the IPO market is expected to remain challenging through at least the remainder of 2025 but shows promising signs of recovery beginning in the second half of 2025 and into early 2026, driven by stabilizing economic conditions, easing interest rates, and renewed investor confidence [1][2][3][4].
Meanwhile, AI is forcing a rethink of value-based pricing models in law, accounting, and other professional services [1]. AI is being used in various industries to increase productivity, such as drafting legal documents and processing title reports [1].
First-time founders generally have a hard time raising capital because most VCs and angel investors feel more comfortable backing a team that has done it before [1]. However, with the right idea, funding can be secured, as shown by the success stories of Glean and Notion.
In conclusion, while the IPO market and the broader fundraising environment remain challenging, the potential for growth and recovery is evident. AI, in particular, is proving to be a game-changer in various industries, offering high-ROI opportunities and a promising future for startups.
References: [1] Source 1 [2] Source 2 [3] Source 3 [4] Source 4
Technology continues to be a focus for venture capitalists (VCs) in the startup world, with approximately 33% to 35% of the deals invested in this year being AI-related. VCs are particularly interested in AI companies that can scale, have clear customers, and solve real-world problems.
AI is being used in various industries to increase productivity, such as drafting legal documents and processing title reports, indicating the importance of technology in today's market and the potential it holds for startups.
