According to a recent report from data provider PitchBook, venture capital funding reached $91.5 billion in Q1, exceeding the previous quarter's allocation by 18.5% and marking the second-highest quarterly investment in the last decade. However, despite this seemingly positive news, experts are warning of trouble ahead for startups.

Kyle Stanford, lead U.S. venture capital analyst at PitchBook, expressed his most bearish outlook on VC dealmaking in 11 years, citing shattered expectations of significant exits in 2025. The anticipated cycle of IPOs and big acquisitions generating cash for investors and founders, which would then be channeled back into startup funding, has been derailed by stock market volatility and fears of a recession triggered by President Trump's tariff policy.

Startups are hesitant to debut on the public markets during a time of depressed stock prices, leading companies like fintech Klarna and physical therapy company Hinge to postpone or consider delaying their IPOs. Stanford noted that the strong dealmaking totals in Q1 don't paint a complete picture of investor excitement for startups, as a significant portion of the funding was concentrated in a few large deals.

OpenAI's $40 billion round accounted for a staggering 44% of the total deal value, while nine other companies raising $500 million or more accounted for an additional 27%. Stanford warned that these large deals are "masking the challenges many founders are going through" and predicted that many companies will need to come to terms with down rounds or getting acquired for large discounts.

This warning is not new, as investors and analysts have been predicting widespread startup collapse since the end of the zero-interest-rate policy (ZIRP) era in 2022. While some startups did fail, others cut costs and managed to keep growing, albeit at a slower rate than investor expectations. However, Stanford believes that 2025 will be another difficult year for startup shutdowns, especially if a recession occurs.

In the event of a recession, startups could lose a significant portion of their revenues and growth, forcing them to be sold for cents on the dollar or go out of business. Stanford's prediction is a stark contrast to the optimism that characterized the startup ecosystem in recent years, and it serves as a reminder that even strong funding numbers can't shield startups from the broader economic trends.

As the startup ecosystem navigates this uncertain landscape, it remains to be seen how founders and investors will adapt to the changing market conditions. One thing is clear, however: the road ahead will be challenging, and only the most resilient startups will survive.