After two tough years of investor-friendly dealmaking, the startup funding market has flipped back in founders’ direction. Venture investors say the market has “flipped,” with greater competition for the best companies, cleaner term sheets coming back into vogue, and founders having real choice in who they allow onto their cap tables.
There are several data sets that support the turn. According to Carta’s State of Private Markets, the proportion of up rounds has rebounded above 70%, reversing the trough in 2023. The PitchBook-NVCA Venture Monitor reports US venture “dry powder” remains above $300B, a war chest that increasingly pursues fewer, higher-quality targets (and especially in AI, cybersecurity and infrastructure).
The thaw in the public market has been a boon. Listings like Reddit and Astera Labs showed that durable growth might be able to find publicly receptive investors again, as late-stage financings for AI leaders including xAI and Anthropic indicated marquee founders can demand speed and terms last seen in 2021.
Why the venture funding pendulum has swung back
There are three main forces at work here. First, capital supply is plentiful; money raised in the last cycle will need to be put to work. Second, we have a focus of demand: investors are prioritizing companies that have strong product-market fit and capital-efficient growth, leading to a “flight to quality” that is driving up price for the best assets. Third, AI has acted as a catalyst to pull forward enterprise budgets and strategic interest.
CB Insights has charted a recovery in software mega-rounds and median late-stage valuations despite total deal counts staying below 2021 peaks. That shape — fewer deals, bigger checks — all else equal, puts leverage in the hands of breakout founders who control scarce capacity in hot categories.
What increased founder power means for startups today
Founder leverage is not only about price. Perhaps the most instructive indicator right now is that “clean” structures are back: 1x non-participating prefs, fewer ratchets, and a lowering of aggressive demands on anti-dilution. Timelines are shrinking as well, with preemptive term sheets and partner meetings dropping from weeks to days when the metrics can no longer be denied.
It happens in governance, too. Founders are fighting and winning to maintain board balance, protect their run-of-the-mill pro rata rights among aligned insiders, and make space for strategic investors who accelerate distribution. Simply put, great businesses can choose their partners and not just price.
Investors themselves acknowledge the shift. The empathy she gained from raising her own money informs how she counsels founders to run tight, high-signal processes, says Leslie Feinzaig of Graham & Walker. Ross Fubini, a partner at XYZ Venture, has a common phrase about how to decide who to invest with: It’s person, firm and then terms — select first for the human being you are confident can build something; bet on the platform behind that person; sign up to get in at almost any price.
A practical hands-on how-to playbook for founders
- Run a defined, time-boxed process. Establish a large data room with cohort retention, burn multiple, sales efficiency, and pipeline quality so you can speed through diligence without losing control. Employ a see-through timeline to establish competition, without all that psycho shit; and the credibility rises like interest over rounds.
- Place a premium on resiliency, not just valuation. Prefer tidy terms to small price bumps that come with structure. Lock in post-close support — hiring, customer introductions, follow-on reserves — and reference both the partner and the firm’s platform with CEOs they recently backed. If secondary liquidity enters the equation, make it limited and milestone-driven.
- Design the cap table you’d like to run. Reserve room for strategic angels and operators that can shorten your go-to-market learning curve. Access is your currency — spend it on the compounding advantage in a seller’s marketplace.
Implications for venture capital firms in this market
For investors, it’s very simple: speed, certainty, and post-investment execution carry the day.
“The go-to-market for your fund” is as important as any thesis. With the number of funds off their peak but money still plentiful, unique sourcing, hands-on operational help, and a reputation for clean dealing are the only durable edge.
Key caveats for founders and VCs in the current cycle
This is not 2021 redux. Power has transferred lopsidedly to those who actually have efficiency and momentum. Early green shoots of spring don’t eliminate macro risk and the market is still punishing leaky funnels or undisciplined burn. But for founders building crucial software and AI-inflected infrastructure, the leverage line has demonstrably shifted.
Cycles always rebalance. For now, the founders who marry sharp metrics with thoughtful partner selection have the privilege of naming their terms of engagement — and right now, in this market, that’s the only edge.
