USA Law and Practice Contributed by: D. Scott Bennett, Nicholas A. Dorsey, Virginia M. Anderson and Ellen H. Park, Cravath, Swaine & Moore LLP
1. Trends 1.1 VC Market
tariffs, federal spending and broader geopolitical uncertainty. Many companies paused fundraising efforts in 2023 and 2024 at the risk of facing a decreased valuation, but will need to raise additional capi - tal soon to extend their runways. Undeployed capital at investment firms (also known as “dry powder” ) has hit record levels (estimated to have reached USD308 billion in the USA at the end of 2024), which is also pressuring these firms toward near-term investments. 1.2 Key Trends Amid a challenging climate for venture capital activity, some growth companies have thrived in the financing market while many others have struggled. For companies that have faced financing challenges, “down round” raises, “cramdowns” and investor-friendly deal terms have been used in increasing frequency in order to close financing rounds. Bridge financing solu - tions and alternative financing solutions have also remained prevalent. For trending companies, particularly in the AI sector, investors have accepted less-favourable deal terms and are turning to creative structur - ing solutions to participate in funding rounds. The use of special purpose vehicles (or SPVs), in particular, is a growing trend. Down Rounds, Cramdowns and Investor- Friendly Deal Terms Down rounds – ie, equity financings where a company sells equity at a valuation that is lower than a valuation achieved in the immediately preceding raise – accounted for 15% of com - pleted financing rounds in 2024. A “cramdown” describes a situation in which existing investors lead a new financing that
The AI sector drove momentum in the venture capital market throughout the past year. Data - bricks, a data and AI company, raised USD10 billion in a funding round, valuing the company at more than USD62 billion. The investment was the largest round of the year, topping the USD6.6 billion raised by OpenAI in October 2024 at a post-money valuation of USD157 billion. Oth - er generative AI companies, including xAI and Anthropic, also raised significant rounds, with xAI raising two rounds of USD6 billion each and Anthropic raising two rounds of USD4 billion each. At the beginning of 2025, OpenAI also announced the Stargate Project, a joint venture which will seek to invest USD500 billion over the next four years in new AI infrastructure in the United States. Due in part to these notable transactions in the AI sector, venture capital deal values rose to USD209 billion in 2024 despite deal volumes falling to the lowest level since 2019. US exit values rebounded to USD149 billion in 2024. M&A activity accounted for more than 50% of the total US exit value, which has remained rela - tively unchanged since last year. While the AI sector is widely expected to con - tinue driving venture capital deals in 2025, there are also reasons to believe that the US venture capital market more generally may rebound over the course of the year. The perception of a more business-friendly regulatory environ - ment has been expected to fuel a rise in capi - tal markets activity. However, the beginning of 2025 has been tumultuous, as investors have become concerned about slowing growth in the market and rising prices, largely tied to rapidly changing policy from Washington, DC around
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