AI is again looking set to be a dominant sector of focus along with life sciences, fintech, and climatetech with exits potentially more prevalent this year, albeit the impact of the new US administration's policy stances remains an unknown in many areas.

Those companies operating in the "intelligence layer" of AI (developing e.g. language models) were the focus of high-profile investment rounds in 2024, but there was also strong interest from infrastructure and core-plus investors in ventures in AI’s “enabling” layer (the infrastructure behind the model such as data centres) with Singapore a particular hotspot for such investments. The “application” layer (where AI models are integrated into real-world systems to deliver actionable insights and drive decision-making) also saw significant activity in 2024 and we expect factors such as the aging global population, the increased wellness focus and the energy transition to drive a strong demand for AI-enabled healthtech. The impact of the US government's potential deregulation in this sector and the implications for the market remain uncertain however. 

Such applications have particular relevance in the life sciences sector which saw year-on-year growth in Europe, with the UK biotech sector alone raising £2.06 billion in VC funding across 2024, representing an approximate 65% year-on-year increase. The US Secretary for Health's policy views on preventative healthcare may also help drive activity in that area. Climate tech too has demonstrated a degree of resilience, with investment in UK climate tech companies increasing by 24% according to research by PwC. Climate tech accelerators and environmental prizes like the Earthshot Prize continue to play a vital role in discovering and scaling climate tech solutions, maintaining their importance within the UK's VC ecosystem.

A key theme we saw globally in 2024 was the increasing demand for liquidity, with subdued capital markets and M&A activity. Later stage companies looked to address this problem through large scale secondary sale processes. This ensures the company meets the needs of those sellers (e.g., founders, investors etc), while remaining in control of its exit timeline. We expect this trend to continue into 2025, particularly for very successful companies, as early investors look to deleverage and crystallise some gains. We continue to see promising signs for the secondary market’s growth including the increasing regularity of tender offer announcements from top startups and the expanding number of general secondary funds with large amounts in dry powder designated for venture secondaries. Some recent commentaries have suggested that the share of secondaries in new funding rounds is increasing, with some rounds being made up of around 80% secondary shares and 20% new equity.

Looking ahead in 2025, we expect a stronger year for venture and growth capital, with the key drivers including more favourable macroeconomic conditions, easing inflation and interest rate cuts. Improved confidence broadly should see a marked uptick in successful liquidity events, and we expect to see many high-profile unicorns execute on long-awaited IPOs, as well as a focus on M&A exits for many companies in 2025. There have been an increasing number of reports of announced and anticipated IPOs for venture backed success stories with high profile fintech providers amongst those on the exit path which hints at a busier year ahead albeit the wider political climate and impact of US policy decisions means there is still some degree of uncertainty as to deal viability.

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