In early 2025, the global startup ecosystem experienced a pronounced slowdown at its most critical stage. While blockbuster megadeals in AI and biotech make headlines, the earliest-stage funding environment remains under intense pressure. Deal counts have fallen sharply, and total capital raised in pre-seed rounds is contracting across every region, underscoring a challenging landscape for innovators seeking their first institutional checks.

This article examines the numbers behind the downturn, explores the sectors still drawing investor interest, analyzes the macroeconomic forces at play, and offers practical guidance for founders aiming to weather the storm and position themselves for future growth.

Quantitative Trends Reveal Funding Contraction

Global venture funding for all stages fell to $285 billion in 2023—a 42% drop year-over-year—driven principally by rising interest rates and economic uncertainty. Pre-seed rounds, the riskiest bets in venture portfolios, have felt this pullback most acutely. In Q1 2025, US startups using Carta raised $737 million across 5,119 instruments, down from $923 million and 6,251 instruments in Q4 2024. That represents roughly a 20% drop in both deal count and funding volume in just one quarter.

In the US, rounds under $1 million declined from 3,800 in Q1 2024 to 3,400 in Q1 2025. Rounds above $1 million saw an even steeper trajectory, dropping from 2,900 to 1,700 in the same period. Across Europe, Q1 2025 seed investment held at $1.6 billion across roughly 850 deals, but deal volume has slipped steadily since Q1 2024. Central and Eastern Europe (CEE) experienced a 23% year-over-year decline, painting a sobering picture of investor caution.

Sector Hotspots Amid Funding Drought

Despite widespread contraction, a handful of sectors continue to attract pre-seed interest. Investors prioritize startups with technical defensibility and high growth potential, concentrating capital on fewer, high-conviction opportunities.

• Artificial Intelligence (AI): Over $50 billion flowed into AI ventures in the past two years, fueled by generative models and automation tools.
• Green and Sustainable Tech: Climate-focused startups raised nearly $70 billion in 2023, drawing strategic CVC interest.
• Healthcare and Biotech: Early-stage funding grew 20% year-over-year in 2023, especially in precision medicine and data-driven diagnostics.

Other verticals—such as consumer apps and general SaaS—have seen investors narrow their focus, often redirecting capital toward founders with established track records or clear paths to near-term revenue.

Investor Behavior and Macro Drivers

With central banks driving up interest rates to combat inflation, the cost of capital has risen significantly. Early-stage investors, facing both higher capital costs and portfolio mark-to-market pressures, are exhibiting a flight to certainty. They allocate larger checks to fewer deals and demand stricter milestones before releasing funds.

• Increased due diligence: Longer deal timelines and deeper technical reviews.
• Emphasis on traction: Metrics like revenue, user growth, or pilot commitments.
• Preference for strategic alignment: Corporate venture arms focus on AI, healthtech, and climate solutions.

Geopolitical tensions—particularly between the US and China—add another layer of uncertainty, reducing cross-border capital flows and prompting region-specific caution. Venture capitalists are parsing regulations more carefully, leading to slowed deal cycles and smaller initial checks.

Regional Disparities: A Closer Look

Despite the global trend, regional nuances shape the pre-seed landscape. The US remains the largest hub, buoyed by a concentration of AI talent and marquee accelerators. Yet even here, deals outside top tech clusters face tougher scrutiny.

Europe’s pre-seed scene shows greater stability in total dollars but shrinking deal counts. Investors focus on startups with clear go-to-market strategies and robust founding teams. Currency headwinds against the dollar compound these challenges, making fundraising in international rounds more complex.

In Central and Eastern Europe, the 23% decline underscores investors’ sensitivity to macro shifts. Startups in this region must now demonstrate traction beyond local markets, often pursuing US or Western European partnerships to access growth capital.

Outlook and Strategies for Founders

While current conditions test resilience, founders can adopt targeted tactics to navigate the funding winter. By anticipating investor concerns and sharpening their value propositions, early-stage teams can still secure vital pre-seed support.

• Build momentum early: Leverage angel networks, incubators, and non-dilutive grants to hit initial milestones.
• Sharpen your narrative: Craft a clear story around problem, solution, and market potential, emphasizing proven founders with track records.
• Focus on unit economics: Demonstrate customer acquisition cost, lifetime value, or pilot revenue to reduce perceived risk.
• Choose the right investors: Target partners with domain expertise and a history of follow-on support, not just capital.
• Plan for flexibility: Prepare contingency scenarios for slower funding rounds or smaller checks.

Looking ahead, any relief in pre-seed funding is likely to stem from broader economic stabilization—lower interest rates, improved consumer confidence, or new government incentives for innovation. Meanwhile, founders who concentrate on execution, maintain strong financial discipline, and cultivate relationships with investor champions will be best positioned to thrive when capital trends reverse.

In an environment where harder milestones for progress and elevated scrutiny are the new norm, success will favor those who combine rigorous preparation with unwavering determination. By staying lean, focusing on high-impact metrics, and aligning early with strategic backers, startups can turn this challenging period into a platform for sustainable growth.

The pre-seed landscape may be narrower today, but for the most prepared and adaptable founders, it remains a gateway to transformative impact and long-term success.