With 2025 behind us, and some time for the data to stabilize, we can look back at VC activity and try to understand what it means for TBED efforts going forward. The VC storyline of 2025 should be familiar to anyone who has been following investment news. Record funding rounds, huge amounts of capital deployed, questions of an AI bubble. Where amongst the big flashy lights of AI mega-deals do we find the subtlety and nuance that informs TBED investor activity and policy? Looking closely at historical trends and segmenting the data by deal size highlights what most companies seeking funding face and points to potential outcomes for 2026.
As with past reports, we look at deals of less than $100 million to get a clearer understanding of the environment most companies seeking funding face. What we find is not only a continuing decrease in deal flow, but also a decline in total funding compared to previous 2025 quarters and Q4 2024. Deal count is at a new low over the past 20 quarters at just 1,346 deals. This is a 26% drop from the previous low in Q3 and a 69% drop from the high in Q1 2022 (Figure 1). To see quarterly deal flow this low, we need to look back to 2012, so the recent trend appears to be a more fundamental market reset than a near-term correction.
Figure 1: Count of U.S. VC deals and total dollars by quarter for transactions under $100 million. Deals without a known value are excluded.
One challenge in interpreting these numbers is that we don’t have information on what the unfunded ask from companies looks like. Regional venture development organizations can attest to what they are seeing in their own markets, but with the steep drop in recent activity and the sustained decline over the past five years, it seems unlikely that there is a commensurate drop in the number of companies seeking funding, and that the reduced investment activity is driven solely by decreased demand.
The continued contraction in the number of smaller deals creates significant challenges for TBED efforts aimed at boosting the innovation economy. With fewer than 1,500 deals under $100 million funded in Q4 for the entire country and no sign of the market rebounding without considerable public policy encouragement, SSTI is continuing its more than 30 year national conversation on how to improve opportunities for the innovative companies the U.S. economy needs in an increasingly competitive international environment.
Turning to deals larger than $100 million offers a strong contrast and begins to highlight what is driving the total market numbers. For large deals, we see a steady increase in deal count since Q1 2023 and a large jump in total funding beginning at the end of 2024. In Q4 of 2025, just 117 deals totaled $56 billion. Put another way, 8% of the deals accounted for 75% of the total VC dollars. What role does that leave for the rest of the country’s innovation capacity to serve in supporting and driving economic opportunity?
Figure 2: Count of U.S. VC deals and total dollars by quarter for transactions over $100 million. Deals without a known value are excluded.
Looking at the VC market as a whole, the simple story is that deals are on a downward trend, but overall dollar volume is up. Fewer companies are raising more money, so investors are willing to put significant capital into ideas they think will generate returns. The important consideration when interpreting these numbers is that investors are selecting for opportunities they hope will provide the highest financial returns quickly, not necessarily for companies that will provide lasting and impactful economic benefit.
Figure 3: Count of U.S. VC deals and total dollars by quarter for all deal sizes. Deals without a known value are excluded.
One interesting observation from the historical data is the spikes in deal count in the first quarter of each of the past five years. Looking more closely at the data, the Q1 spikes are driven by deal count from accelerator and incubator deals and go back to 2009. The cohort-based programs happen on a scheduled basis, so there is a cyclical rhythm to their investment activity. Understanding this nuance can help us interpret early-stage investment data and mentally smooth out some quarter-to-quarter variations. Importantly, realizing that quarterly fluctuations are tied to program schedules allows for some predictability in data analysis and greater confidence in interpreting deal flow data.
Figure 4: Quarterly count of U.S. VC deals under $100 million by deal type. Deals without a known value are excluded.
Looking forward to 2026, what will venture funding look like if these trends continue? If incubator and accelerator programs stay on the same cycle, we can expect an uptick in deal activity under $100 million in Q1 2026. The average Q4 to Q1 increase over the past four years is 27%, so expecting a similar increase is reasonable and would result in approximately 1,700 Q1 2026 deals. The size of the Q1 deal flow bump and direction of dollar totals will be an important indicator for 2026 activity and how TBED organizations can begin to strategically prepare program and budget plans.
For TBED professionals, how do these national trends reflect your anecdotal and reported data? What strategies have you employed to support promising companies struggling to secure funding as the market shifts away from early-stage and smaller funding rounds? If the companies you work with are facing challenges raising funds, or if you have successes to share in a challenging market, please join SSTI’s Community of Practice to discuss these issues with peers facing similar issues in their communities.
This page was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.