After a dark few years for the startup economy, will 2025 finally be the year of the early-stage tech company?
Many entrepreneurs and investors believe so.
“With interest rates expected to fall, economies recovering around the world, and the AI revolution kicking into a higher gear, we expect deal volumes for early- and later-stage venture-backed companies to increase meaningfully over the next 12 months,” says Target Global co-founder Shmuel Chafets, whose firm invests in dozens of privately held companies from its home base in Germany.
But as any investor knows, the details matter. Experts like Chafets believe that these five trends will be especially important as the tech industry shakes off the post-pandemic blues and looks ahead to the next expansion cycle.
Interest Rates Are Falling Around the World (Finally)
After a longer-than-expected period of historically high inflation and central bank interest rates, both are beginning to decline around the world.
The trend began in Europe and remains especially pronounced there. For example, headline inflation is expected to decline marginally in the European Union through 2026, from 2.4% this year to 1.9% in two years’ time. Over a longer time horizon, expectations are for 2% inflation, approximately in line with historical norms.
It’s happening elsewhere as well. That includes the United States, where the Federal Reserve has already cut its benchmark interest rate three times in 2024. And because lower interest rates mean lower borrowing costs, this is very bullish for venture-backed startups.
Investors Are Bullish on Crypto Again
Following the U.S. presidential election, crypto analysts called for Bitcoin to reach $90,000 by the end of the year. It has since breached that level.
Now, the next goal is “a bull cycle target of $200,000 by the end of 2025,” said Gautam Chhugani of The Block, a cryptocurrency media platform.
Non-Bitcoin cryptocurrencies are benefiting from the perception that the next U.S. presidential administration will be more favorable to the industry than the current administration. Time will tell if this really is the case, but for now, crypto startups have a powerful tailwind.
China Is Slowly Recovering, With More to Come
Although it never fell into a proper recession, China’s economy has not been doing well by historical standards. Its growth rate fell below 5% for several quarters running, and those who question the Chinese government’s official figures believe the actual rate is far lower.
But things appear to be turning a corner thanks to government stimulus and a long-awaited stabilization of the housing market. That’s good news for startups with exposure to the world’s first- or second-largest economy (depending on how its size is defined).
Europe Is Embracing Pro-Business Policy
Europe is turning a corner as well after a difficult few years, with pro-business policy and declining capital costs helping to pull the continent out of a mild recession. As with China’s improved fortunes, this stands to benefit any startups exposed to the Europe market, regardless of where they’re based.
The Startup Scene Is More Geographically Diverse Than Ever
It’s not just Europe, China, or North America for that matter. The global startup scene is more geographically diverse than ever before, with emerging hubs of innovation on every continent (including Africa, long a laggard in this area). As the world becomes “flatter” and capital flows more easily across borders, look for this trend to continue and indeed accelerate.
Better Times Ahead — For Real This Time?
Experienced entrepreneurs and investors might be forgiven for taking predictions of a startup boom in 2025 with a grain of salt — or a whole heap. They’ve seen this movie before: Confidently bullish projections that run headlong into reality.
So, what makes this time different? Why should we believe that 2025 really will be the year of the startup?
For starters, the macroeconomic picture is different now, with interest rates falling around the world and major economies like China showing signs of life. Nearly as importantly, investors have more “dry powder” than before, making them more willing (and indeed eager) to get deals done. A more geographically diverse tech economy poised to benefit from AI-enabled value creation offers exciting prospects as well.
Then again, nothing is set in stone. Events could pull the rug out from under-eager entrepreneurs and investors one more time. Hope for the best, as they say, but prepare for the worst.
