For venture capital, 2025 looks like 1999

Nov 13, 2025

If you are an accredited investor (as per the SEC) and venture capital firms are willing to take your money, you can bet on startups to generate returns. You would agree to lock up your capital in VC funds for 10 years or more, while they put your money to work by investing in unproven business models. This is a fair deal if you are compensated for the risk you are taking. At the very minimum, VC returns should beat the returns from public markets. If your VC fund returns 50% more than what you would have otherwise got from, say the S&P 500, over the same period, you can say your public market equivalent ratio or PME ratio is 1.5. But something is changing that puts VC returns at risk.

Dot-com era returns

All VC firms are not created equal. People chase some VC firms to give them money, because they have consistently good returns (WSJ on Sequoia Capital’s $7.2B fundraise). Good returns bring more capital and better deal flow. Three Sequoia funds in the 2000s had returns between 8x and 11x (Business Insider report). However, average returns of the U.S. VC industry are less impressive.

VC funds that started investing in 1999 — also called 1999 vintages — at the peak of the dot-com bubble, had a PME ratio of 0.89, meaning their weighted average returns were 11% lower than what you would have got from indexing the S&P 500 (data from this paper). Funds from 2000 had a PME ratio of 0.78. However, funds that started investing early in the boom and were probably investing at more reasonable valuations, had high PME ratios. 3.14 for 1995 funds, 4.34 for 1996 and 2.68 for 1997. Funds from 1998 also did well with a PME ratio of 1.74.

To invest, or not to invest

If you were a venture capitalist in 1999, you saw startups going public at astronomical valuations. Here is a snippet of a CNET report from 1998 about TheGlobe.com, an early social media startup:

TheGlobe.com took Wall Street by surprise with its initial public offering this morning, blasting out of the gate with its first trade of the day at 87 a share--a ninefold increase from its target price.

Venture capitalists at the time probably knew the boom would not continue forever and that it would take a lot to justify the high valuations. But when everyone is riding the wave, it is difficult to sit out. Sitting out could be bad in other ways. Here is FT on the change of command at Sequoia:

Sequoia Capital’s Roelof Botha was ousted by top lieutenants who lost confidence in his ability to keep Silicon Valley’s most powerful venture capital firm ahead of rivals.

Under Botha, Sequoia has taken a more cautious approach to AI investment than some rivals. The firm invested a little more than $20mn in OpenAI in 2021, when the ChatGPT maker was valued at about $20bn, and has boosted that stake in subsequent rounds, said people with knowledge of the deals. When OpenAI raised funds at a $260bn valuation this year, Sequoia offered to invest $1bn, but ultimately was given a stake of a fraction of that, according to people with knowledge of that deal.

As a venture capitalist at the peak of a boom, you do not seem to have great options. Sitting out could cost you, but getting in could depress your returns. In 1999, VC firms chose to get in, perhaps thinking they could get out before the bubble burst. U.S. VC investments totaled $8B in 1995, inching up to $21B in 1998 (source). They hit $54B in 1999. $105B in 2000. VC firms also started taking bigger swings with average deal size increasing 125% from $4.4M to $9.8M between 1995 and 1999. Average deal size was $5.8M in 1998 — the last year of the dot-com bubble in which funds returned more than public markets.

2025 looks like 1999

It is becoming difficult to ignore the similarities between 1999 and 2025. In the first three quarters of 2025, U.S. VC investments blew past the 2024 total investment of $215B (NVCA report). Their total investment in the first three quarters of 2025 was in the neighborhood of $250B (KPMG report 1 and report 2). At this rate, venture capital investments as a share of U.S. GDP would be double the 1999 level by the end of 2025. Between 2022 and 2024, average deal size was in the range of $12M to $15M. In the first three quarters of 2025, it stood at $26M.

Caveat investor

As a VC firm, all of this might still be okay if valuations are reasonable, you have sufficient downside protections (Business Insider report), your portfolio companies have a path to profitability in the right timeframe (WSJ report), your investors are not begging for liquidity (Carta report), you get the idea.