Just 9,358 VC deals closed in Q3, the fewest since 2020, but AI attracted $193 billion this year. BestBrokers analyst Paul Hoffman reveals why investors are betting bigger.
What’s happening: Venture capital deal activity reached a five-year low in the third quarter of 2025, with just 9,358 deals recorded globally, the weakest quarter since Q2 2020.
Why this matters: The dramatic reduction in deal volume signals a fundamental shift in investor strategy towards fewer but substantially larger investments, concentrated primarily in high-growth sectors.
The venture capital landscape has undergone a dramatic transformation in 2025, with deal activity plummeting to levels not seen since the pandemic whilst artificial intelligence startups command unprecedented funding levels.
According to research from BestBrokers, which analysed investment data from PitchBook, CB Insights, and other sources, the number of venture capital deals has been steadily declining over the past five years, reaching a record low of just 9,358 in the third quarter of 2025. This represents the lowest number of confirmed VC deals since Q2 2020, when just 9,168 deals were recorded.
Deals decline sharply
The contraction in deal activity has been severe across the broader startup ecosystem. Between Q1 2022 and Q3 2025, global VC deal volume fell from 16,821 to 9,358, a drop of 44%, whilst investments in AI and machine learning startups slipped from 3,364 to 2,427, a decline of 27.85%.
Yet beneath the surface of declining deal activity, artificial intelligence has emerged as the undisputed winner in the competition for venture capital. Despite the 5-year low level in the number of investments, the artificial intelligence and machine learning sector alone has attracted $192.7 billion in funding so far in 2025, surpassing every previous annual total on record.
AI dominates funding
During the third quarter of 2025, 2,427 investment deals in AI companies were completed, with startups securing $64.3 billion in funding, accounting for more than 53.3% of the total $120.7 billion invested by VC firms. Moreover, 2025 is the first year when AI attracts more funding than all other sectors combined, $192.7 billion for AI against just $174.1 billion for other startups.
AI funding has steadily increased its share, rising from 20% of all venture capital investment deals in Q1 2022 to 25.9% over the same period, a clear sign of sustained investor confidence even as broader activity slows. In the first quarter of 2025, AI startups attracted $73.1 billion of the $126.3 billion in total venture capital invested, marking the highest concentration of investment in the sector’s history.
Mega-rounds reshape landscape
This surge in venture capital activity toward AI startups is driven by several major funding rounds completed in the third quarter of the year, including Anthropic’s $13 billion Series F round led by ICONIQ, xAI’s $10 billion raise that pushed its valuation to $200 billion, and French startup Mistral AI’s remarkable $2 billion round at a $14 billion valuation.
The funding surge flows primarily into foundational AI infrastructure and model development rather than application-layer startups that most founders actually build. Large language model developers and AI infrastructure providers secure nine-figure rounds whilst vertical AI applications and SaaS integrations compete for significantly smaller pools of capital.
Strategic recalibration
Paul Hoffman, data analyst and author at BestBrokers, provided context for the shifting landscape: “Venture capital has clearly entered a consolidation phase. The drop in VC deals across industries isn’t just about investor caution, but a sign of strategic recalibration toward capital efficiency and proven business models. Following years of abundant liquidity and speculative growth, investors are now prioritising quality over quantity, favouring startups that demonstrate scalability, defensible technology, and early signs of profitability.”
He continued: “This shift signals the end of the ‘growth at all costs’ era and the beginning of more disciplined capital allocation. As AI continues to dominate investor attention, many non-AI sectors are being deprioritised, creating a narrower, more selective funding environment. The broader implication is that innovation pipelines may slow temporarily, but the startups that do secure funding will likely emerge stronger and better positioned for sustainable growth.”
The transformation has created a bifurcated market. As AI sector nears 2024 full-year funding with 4,835 deals Technical.ly reported in August, the funding surge concentrates in infrastructure plays whilst application-layer startups face tighter capital constraints. For founders outside the AI sector, the environment has become increasingly challenging, with capital available but highly selective.
The full research dataset and methodology are available through BestBrokers’ complete report, which provides detailed analysis of major AI deals and venture capital investment trends across sectors and geographies.
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