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We refer to it as a 'rational capital' strategy – looking for companies that head towards a strategic exit versus a unicorn approach. That's how our firm differentiates our investment thesis.
After a wild 2021 where VCs scrambled to find the next greatest unicorn, and the subsequent dry spell, the market is seeing a turn towards safer investment strategies to get ahead in 2025.
Exit potential: Lindsay Fairman, venture partner at BlueTree Venture Capital, says her firm is looking for earlier exits. "We refer to it as a 'rational capital' strategy – looking for companies that head towards a strategic exit versus a unicorn approach. That's how our firm differentiates our investment thesis."
Pittsburgh-based BlueTree specializes in Series A B2B SaaS companies, focusing on software with significant intellectual property rather than hardware-heavy solutions. "An IRR focus tends to lead to more success and fewer companies going to zero in our portfolio because of this strategy," Fairman says.
LF on Series A funding: The pathway to Series A funding has grown steeper, reflecting changes in the wider market. "In 2023 and 2024, companies could seek Series A with $1 million ARR. Now, within six months, that has risen to nearly $2 million," Fairman notes. "Some of that is due to a market mismatch – the number of companies looking for funding versus what investors are willing to invest in."
The shift has allowed venture capitalists to be more selective, conducting extensive due diligence to ensure their portfolio’s success. Fairman adds, "If you have a company just peeking into $1 million ARR and another tipping towards $2 million, we’ll take a more serious look at the one closer to $2 million. It’s less risk potential and demonstrates more market demand."
In 2023 and 2024, companies could seek Series A with $1 million ARR. Now, within six months, that has risen to nearly $2 million.
LF on deal flow: Deal flow has been inconsistent since the pandemic, as companies that raised capital during the COVID-19 boom now seek additional funding—often falling short of the high valuations set during that period.
"We’ve been in a valley with companies that raised during the peak of COVID with tremendous valuations," Fairman says. "They've hit a point, 18 to 24 months later, where they're seeking another round of investment and maybe didn't hit all the strides and metrics needed based on the valuation they received back in 2021."
LF on M&A in 2025: "There's a lot of energy around M&A opening up this year." Fairman points to more certainty in the economy following the election and interest rate adjustments, citing a recent Citizens Bank report highlighting a more positive sentiment between buyers and sellers.
"There's alignment around willingness to have transactions. Private companies and public companies are in a position to make these acquisitions, but also are agreeing on what a reasonable valuation may be. It's going to help transactions happen if people are starting off aligned at the beginning."