Private capital predictions for 2025

Private capital investor priorities are changing. When we asked which activity investors plan to focus on in 2025, 50% said new deal sourcing—up from 30% last year. 

Our data suggests two primary reasons for this increased focus on deal sourcing: a more promising economic outlook and a growing pressure to deploy capital. 

Over 70% of respondents expect to close more deals in 2025. And with 62% of respondents citing the economic outlook as a significant driver of their deal activity, it’s evident that improving market conditions are fueling this optimism.

While there was a similar sense of deal fervor in last year’s survey, investor expectations are now backed by less uncertainty—with the Fed beginning its rate easing cycle in September and expectations for multiple rate cuts in 2025.

Firms also face greater urgency to deploy capital as their investment periods draw to a close. Not only are many funds experiencing slower capital deployment and a decline in fund graduation rates, but half of our respondents view the need to prove their existing funds’ value as a significant challenge—more on that in prediction three. 

Combine these factors, and it’s clear why many firms are re-doubling their efforts on deal sourcing.

A shift in priorities calls for new sourcing strategies

Deal sourcing is a key workflow that firms want to streamline. For example, nearly half (46%) of respondents believe that data can be used to make their deal sourcing more efficient. Firms have a significant opportunity to use their data in more effective ways, by monitoring and acting on changes in key metrics, like company headcount, funding stage, and revenue.

To this end, more firms are using artificial intelligence (AI)—with 64% of respondents using AI to accelerate company research, up from 55% last year. 

Markus Bohl, Managing Director, Europe at Intel Ignite, highlights his firm’s approach to using AI in deal sourcing: 

“For us as a company, [our focus this year] will be about how can we augment our operations and [the] data advantage that we have with AI to see more deals, to see them earlier, and to better understand how big the pond is and the fish we’re looking for?”

This emphasis on sourcing efficiency seems to stem from a change in how firms plan to approach deal sourcing in 2025. In last year’s survey, more respondents anticipated sourcing the majority of deals from their existing networks (and also listed network building as their top priority).

In contrast, this year‘s survey reveals a slight preference for outbound sourcing. Many dealmakers are exploring new ways to source deals outside of their networks, namely by using data and technology. 

With 42% of respondents citing competition as a key factor influencing their deal flow in 2025, the transition to outbound sourcing is likely driven by heightened pressure to find the best deals first.

As Andre Retterath, Partner at Earlybird Ventures, says:  

“Historically, around 70% [of deals] were mostly inbound, driven by a great brand—either firm brand or personal brand of the investor. We see that as competition increases among investors, a shift from mostly inbound to outbound—meaning investors need to [...] do their homework, desk research, be data-driven, [and reach] out to the most promising founders.” 

Top firms are rethinking how to use data and technology to source deals more precisely and efficiently— to monitor signals, broaden their deal pipelines, screen companies faster, and personalize outreach to founders.

Investors are increasingly finding a balance in the data they use when sourcing deals.

Year-over-year, the percentage of investors using four to six data sources remained steady at 49%, indicating a sweet spot for the number of data sources used to evaluate most deals. After the data hype of recent years, investors appear to be narrowing in on which metrics are essential and which are just noise.

There was also a decrease in the percentage of respondents using more sources, with just 6% of investors using seven to nine data sources, down from 22% the previous year. 

There are a few reasons for this. First, respondents may view tools like Affinity, which aggregate and centralize multiple data points, as a single source. There’s also a sense of data fatigue, with many firms consolidating their data sources and focusing on quality over quantity for the majority of deals—perhaps also driven by budgetary constraints and the need to show resource efficiency to limited partners (LPs).

As Adam Shuaib, Partner at Episode 1 Ventures, puts it:

“You very quickly get to a point where additional sources are not adding more value. I think it's about how you use those existing sources in a more clever way… looking at those four or five different sources, but they're responsible for probably 35%, maybe 40% of the deals that we've done in this fund.”

Making sense of AI’s role in the value chain

Investors are learning where data and AI can add the most value in their investment processes. This year, we observed a notable shift towards productivity-related tasks in our respondents’ use of AI. 

For example, 76% of respondents reported using AI to automate daily tasks and 64% for researching companies—up from 62% and 55%, respectively, last year. 

Most significantly, there has been a substantial decrease in the use of AI for investment decisions. Only 13% of respondents reported using AI to decide whether or not to invest in a company, down from 40% the previous year.

Echoing this trend, Jennifer Ard, COO at Intel Capital, explains why AI’s role stops short of decision-making at her firm: 

"We will never have AI make investment decisions because so much of it is about the relationships; you're investing in founders, you're investing in people. But wouldn't it be great if things like legal documents were automated?"

This indicates that investors are using AI as more of a supportive technology—for productivity and efficiency enhancements—not for higher-level decisions. In short, it’s not replacing them. 

“We’ve made a number of AI investments out of the fund in terms of driving workflow efficiencies…everything from emails and responses to using solutions to help expedite diligence.”

— Alexander Ross, General Partner, Illuminate Financial

As the economic outlook shows signs of improvement, firms that have honed in on their track record and fund value proposition will be better positioned to attract LPs once fundraising opportunities rebound. 

One survey respondent noted her expectations for the exit market to pick up once presidential election uncertainty is removed and the economic outlook improves. If this were to drive up M&A and IPO activity, it would have a positive impact on LP liquidity and support greater investing activity. 

The road ahead

2024 was a mixed bag. The majority of funding was concentrated with fewer, established managers— Pitchbook reported that, as of Q3 2024, almost 70% of capital raised year-to-date was by funds that were $500 million or larger. We also saw VC exit value reach a five-quarter low in Q3 2024. 

On the flip side, we have more clarity on the economy, and certain sectors, like AI, financial services, and healthcare, are driving growth in the industry. There’s also a record level of dry powder from growth equity and private equity investors and pent-up demand to deploy. 

While we’re yet to see anything more than a normalization in private capital, there are a lot of positive signs that deal activity will be higher in 2025. 

In any case, the best firms are recognizing change and adapting their strategies now—particularly around deal sourcing and technology. They’re prioritizing quality over quantity, finetuning their approach to data and AI, and finding unique ways to demonstrate their value now so they’re in a better spot when it comes time to fundraise, whenever that may be.