Exit Markets: Reality vs. Surreality in 2025

The exit market is continuing its upward trend in 2025, with both exit counts and dollar volumes on the rise, particularly M&A and PE buyouts. In fact, aggregate M&A and buyout volumes are on track for their largest year on record. However, this increase contrasts with the “sluggish exit market” narrative, highlighting the growing demand for mature tech company acquisitions.

Despite these positive signs, valuations are spiking at an alarming rate. Exit values have surged, with some reaching 3.1x higher than last year. The demand for acquisitions, particularly in the private market, is undeniable—18 startup exits worth $1 billion or more in just the first half of 2025, though only 4 of those were IPOs.

The ongoing issue in the secondary market is the discrepancy between current valuations and earlier private rounds. Late-stage VC portfolios are still feeling the effects of past overvaluations, with many companies trading at discounts of 44% or more.

Startup Funding: Doubling Down on BigAI

Funding levels have bounced back, but what stands out is the extreme concentration of capital going into a handful of BigAI companies. Nearly 50% of venture capital deployed in the first half of 2025 went to fewer than 10 companies. This concentration has pushed valuations even higher, and the risk is growing as the market becomes increasingly saturated with high-priced companies.

AI Foundation Models: The Market's Growing Pains

OpenAI, with its $300 billion valuation, leads the pack but still faces major challenges. The rapid pace of burn rates and the uncertainties of LLM economics add to the complexity. Other companies, like xAI, are following similar patterns, burning massive sums with questionable models.

The venture community is betting big on these foundational models, but many investors still lack solid data to back up their confidence. The question remains: who will be the winner in this crowded field?

Exit Market Trends Matter for Investors

The venture space is witnessing extreme valuation bubbles, particularly in the AI sector. The challenges of pinpointing a winner in an overhyped market could lead to significant setbacks, but for those willing to take the leap, there’s still the potential for massive asymmetric returns. But, as always in venture, it’s not without risk.

We go much deeper on the topic in our newsletter, but all we have to say for now is…buckle up.