USA Trends and Developments Contributed by: Frank Cannone, Michael Lubben, Peter Flägel and Thomas Rezach, Gibbons P.C.
tial and is driving the start-up and VC markets in early 2025. With macroeconomic uncertainty in 2025, it will likely take time for deal-making activity to ramp back up. When it does, however, these AI and machine learning-based compa - nies are expected to lead the charge. Current “Hot” Topics Financial challenges for emerging companies and market outlook in 2025 A major concern in 2024 was the significant drop-off in start-ups that successfully raised funding after securing at least USD1 million in seed rounds. The data, as mentioned above, suggests that this was caused by a more demanding growth trajectory required to secure Series A funding. As interest rates remained high in 2024 (and continue at elevated levels at least for the first half of 2025), the fundraising environment will most likely remain challenging, as investors continue to be selective, investing primarily in proven business models and market trends and snubbing not yet profitable growth companies. However, even those companies that success - fully raised new capital in 2024 were often faced with deteriorating financing conditions from investors; for example, the number of down rounds remained elevated from 2023 through 2024, as many companies that raised funds in 2021 and 2022 were coming back to market. Down round financing deals often come with more complex terms designed to protect the new investors. The preferential terms for the new investors – which may include more preferred shares, transfer of company control to preferred directors or higher liquidation preferences – harbour considerable potential for conflicts with common stockholders, which the founders will have to navigate.
Emerging companies that are shut out of equi - ty funding opportunities or that want to avoid down round financings are faced with the choice of preserving capital by cutting costs or seek - ing other non-traditional sources of financing like venture debt, revenue-based financing or investments from major customers, suppliers or other interest groups. These alternative fund - ing sources can bridge the gap until the broader financing conditions are expected to improve in the course of 2025. For this to occur, more large exits will need to take place at a healthier pace. Currently, there are more companies valued at USD500 million or more than ever before; however, new invest - ments from limited partners are becoming scarc - er. Changes at the Federal Trade Commission are expected to remove certain barriers to acqui - sitions, and rate cuts are also expected later in 2025. However, deal-making figures do not yet signal material increases in activity. Despite this, there remains some optimism that 2025 may see an increase in deal activity. The 2024 election As a result of the 2024 presidential election and control of both the US Senate and Congress going to the Republican Party in early 2025, there is an expectation that US businesses will face less federal regulation and lower taxes, which could boost economic growth and sup - port a resurgence in deal volume. The new administration has also recently imple - mented numerous new tariffs and is engag - ing in a general overhaul of US trade policies. While certain tariffs and policies could lead to a resurgence of inflation, impact supply chains and adversely affect relationships with trad - ing nations, tariffs could lead to more domes - tic involvement in US manufacturing and other
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