How AI Is Reshaping Startup Valuations, Exits, and the Venture Debt Market

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This week, we're looking at how the AI boom is reshaping startup valuations and exits. 

Google’s $32 billion acquisition of Wiz isn’t just its biggest deal ever—it’s a signal of the AI boom reshaping startup valuations. Wiz hit $100 million in ARR in just 18 months, only to be outdone by AI coding editor Cursor, which reached the same milestone in just 12 months. The speed at which AI startups are scaling is unprecedented, driving intense investor demand and soaring valuations.

But deals like Wiz’s are the exception, not the rule. In 2024, liquidity events remained scarce, with many investors still waiting for a broader resurgence in M&A and IPOs. Market uncertainty, amplified by recent policy shifts under President Trump, has made large-scale exits more elusive. Only the highest-caliber companies are commanding premium prices, while many others face tougher fundraising conditions.

For startups that aren’t positioned for a blockbuster exit, the funding landscape looks different. While equity capital is still accessible, it comes at a steeper price. SVB reports that over the past two years, VC investment in the U.S. has dropped 47%—and nearly 60% when AI deals are excluded. In response, many startups are turning to venture debt as a way to extend their runway without excessive dilution.

Venture debt has been on the rise, with deal volume increasing 17% annually since 2014. In 2024, the market hit record highs, fueled by larger deal sizes and an expanding lender base. Excluding major outliers like CoreWeave’s $7.5 billion debt raise, the average venture debt deal in 2024 reached $46 million—more than double the $20.4 million average in 2020.

For founders navigating this landscape, venture debt can be a valuable tool—but only when used wisely. The best candidates are capital-efficient startups with strong recurring revenue and defensible IP. According to SVB, lenders structure deals around key metrics such as:

• Debt-to-ARR: Typically 0.5x to 1x ARR for sustainable leverage.

• Debt-to-Equity: Generally 10-20%, though higher for capital-efficient startups.

• Loan-to-Valuation (LTV): Usually below 25% of the company’s valuation.

Unlike traditional bank loans, venture debt often features flexible repayment structures with low or zero amortization, easing the burden on startups. A well-timed injection of debt can help startups hit their next milestone faster while preserving equity. However, lenders will scrutinize financial health before approval. Sustainable revenue, manageable burn, and a clear path to repayment are essential to securing venture debt on favorable terms.

Lenders also tailor their underwriting approach based on a startup’s life stage. Early-stage startups are assessed based on their investor backing, recent funding rounds, and projected cash burn. A high burn rate signals greater reliance on external capital, making lenders more cautious. They also evaluate the track record of existing investors and their commitment to follow-on funding. In contrast, later-stage companies are measured by their ability to attract non-dilutive capital from new investors and their history of achieving financial and product milestones.

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Wiz’s acquisition proves that standout companies will always attract buyers, but for most startups, sustainable growth is the priority. As the funding environment shifts, founders and investors must carefully evaluate their options. Whether through equity or debt, success in this market comes down to timing, financial discipline, and a clear growth strategy.

Axis Group Ventures has been partnering with VC-backed companies since 2018, providing tailored non-dilutive and debt solutions.

If you’re exploring capital options for next quarter, you can reach Tim Barnes at tbarnes@axisgroupventures.com.

Private Market Developments

• LP-led secondary sales are surging as institutional portfolios expand.

• Secondaries are rising in late-stage VC rounds as exits delay.

• Adams Street Partners' 2025 survey highlights investor optimism in private markets.

• Ultra-wealthy investors boost AI investments via private markets.

• Emergence Capital closes $1B fund , focusing on AI investments.

• KeyBank provides $450M credit facility for Liquidity's US tech lending.

• Banks tighten lending while specialty finance expands, reshaping the credit market.

• Cybersecurity giant Island hits $4.8B valuation after $250M raise.

About AXIS Group Ventures

Axis Group Ventures is a boutique investment bank specializing in strategic debt and equity placements across venture growth, the lower middle market, and special situations. We provide capital-raising support and strategic advice to C-suite executives, board members, and investors. Through our partnership with Rainmaker Securities, we have deep visibility into late-stage private market secondaries, offering firsthand insight into how investors are navigating today’s shifting landscape. 

Founded in 2018, AXIS operates with a commitment to trust, integrity, reliability, responsiveness, and execution.

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