Booms, Busts, And Billion-Dollar Breakthroughs: Learning From 35 Years of Venture Capital Cycles
What’s Happened So Far:
To better understand where we are going, let’s first look at where we are coming from. From dial-up modems to foundational AI models, the venture capital (VC) and startup ecosystem has evolved through multiple cycles of rapid growth, dramatic busts, and revolutionary technological breakthroughs. Understanding these trends helps us navigate the current markets and accurately prepare for the future.
The Long Arc: 35 Years of Booms, Busts & Breakthroughs
A Brief History of Modern Venture Capital
Georges Doriot is credited as the “Father of Venture Capital” in 1946. Venrock, Greylock, CRV and others professionalized the asset class in the 1960’s, And according to the A Brief History of Modern Venture Capital “The 1970s and 1980s brought successful exits for VC investors and created some of today’s biggest companies: Apple, Genentech, FedEx, Microsoft, and Electronic Arts. In 1985, there were more than 290 active VC firms in the U.S., managing more than $17 billion AUM and 530 funds.”
1990–1994: Early Recovery & PC Era Beginnings
With the rise of personal computing, Venture Capital started to grow, with annual investments ranging from approximately $3 billion to $5 billion. Following a slowdown in the late 1980s, the industry began rebuilding, driven by innovations in personal computing, networking, and client-server technologies. The number of venture-backed startups rose from a few hundred at the decade's start to approximately 800–1,000 annually by 1994. Key IPOs included foundational tech companies like Cisco and Netscape, signaling early internet optimism and setting the stage for future expansion.
1995–1999: Dot-Com Boom (Web 1.0 Era)
The late 1990s saw explosive growth in venture capital investments, soaring from around $8 billion in 1995 to over $100 billion by 2000. The number of startups funded each year skyrocketed, growing from roughly 1,588 in 1995 to more than 4,000 by 1999. Notable companies like Amazon, eBay, Yahoo, and AOL epitomized this boom, capitalizing on rapid internet adoption. This era featured intense IPO activity and significant mergers and acquisitions as traditional companies embraced digital innovations.
2000–2004: Dot-Com Crash & Aftermath
The burst of the dot-com bubble resulted in an 80% drop in venture capital spending, falling from peaks exceeding $100 billion in 2000 to approximately $20 billion annually by 2002–2003. The annual number of funded startups plunged by more than half, severely contracting the ecosystem. Yet, this challenging period fostered resilience, allowing future tech giants like Google and PayPal to thrive and define the next era of technological innovation.
2005–2009: Web 2.0 & Social Media Emergence
Venture capital investments gradually recovered, climbing to over $30 billion by 2007, though they dipped again during the Global Financial Crisis of 2008–2009. Annual startup funding returned to around 4,000 deals by 2007. Prominent startups from this era included Facebook, YouTube, Twitter, and cloud computing innovators like AWS. The rise of early stage seed accelerators such as Y Combinator, TechStars, and Founder Institute significantly expanded early-stage startup opportunities. The iPhone is introduced on June 29, 2007 and the Apple App Store launched on July 10, 2008.
2010–2014: Mobile & Cloud Super-cycle
This era marked substantial expansion, with venture capital investments rising from $21.8 billion in 2010 to $56.4 billion by 2014. 1.94 billion people are now online in June 2010 and movie The Social Network comes out making entrepreneurship cool. Increased internet connectivity, Shark Tank and Dragon’s Den help bring startups mainstream around the world. The term "unicorn" is coined by Aileen Lee at Cowboy Ventures to describe privately held startups valued at over $1 billion, illustrating the ecosystem's growing maturity. Widespread adoption of mobile technology and cloud computing spurred significant IPOs, including Facebook and Twitter, bolstering investor confidence and market enthusiasm.
2015–2019: Unicorn Mania & Global Expansion
Venture capital reached record heights, surpassing $130 billion annually by 2018. Although the number of startups funded annually peaked and slightly declined thereafter, capital increasingly concentrated in larger deals. High-profile unicorns such as Uber, Airbnb, and WeWork captured attention, with global expansion notably in China and India. However, cautionary events like WeWork's failed IPO in 2019 signaled growing investor wariness. By 2019, half of the worlds population is now online.
2020–2021: Pandemic Bubble
Unprecedented fiscal stimulus and remote work adoption drove venture capital investments to historic levels, totaling $330 billion in the U.S. in 2021 alone. Startup funding reached record numbers, with over 19,000 companies financed in 2021. High valuations, rapid IPOs, and SPAC listings characterized this euphoric period. Venture Capital as an asset class is now installed globaly around the world. Notable IPOs included Coinbase, Rivian, and Robinhood, marking peak investor exuberance.
2022–2024: The Great Reset
Aggressive interest rate hikes to counter inflation significantly cooled venture activity, reducing annual investments to approximately $170 billion by 2023. Startup funding contracted dramatically, leading to widespread layoffs and closures. Nonetheless, the emergence of generative AI sparked renewed interest and investment, highlighting the resilience and adaptability of the tech ecosystem across new waves of innovation. Companies like OpenAI and Anthropic start attracting substantial attention, underscoring investor enthusiasm for new transformative technologies.
Where’s Venture Capital Heading Now?
So based on where we have been, where are we now? 2025 market sentiment seems to resemble the cautious optimism of 2004. The mobile web’s super cycle ended roughly 3 years ago and now a new wave of proliferating A.I. technology is starting the next one.
Available capital (dry powder) in venture funds exceeds $300 billion, exit markets are gradually reopening, and valuations have stabilized around half of their 2021 peaks. While investor-friendly term sheets have returned, emphasizing fundamental business metrics like revenue quality and capital efficiency.
As of February 2025, there are 5.56 billion individuals worldwide that are internet users, which now amounts to 67.9 % of the global population.
What’s Driving the Next Venture Capital Super-Cycle?
Artificial Intelligence (Foundational & Agentic): Expanded GPU availability, clearer regulatory frameworks, and rising enterprise AI budgets have made AI the primary investment theme, absorbing $131 billion globally in 2024 alone.
Fintech 2.0 (Embedded Financial Infrastructure): Innovations such as FedNow, PSD3, and open banking API’s position fintech infrastructure as essential financial plumbing, attracting stable and significant investment.
Climate Tech & Energy Transition: Regulatory incentives like the U.S. IRA and EU Green Deal have reignited investment, particularly in AI-driven climate solutions, despite broader funding declines. Record breaking times for new Fusion reactors get humanity closer and closer to cheaper energy.
Health Tech & Next-Gen Biotechnology: FDA approvals for gene-editing therapies and AI-driven advancements in protein folding are reshaping biotech investments, and what is even possible in the space. De-extinction of certain species might even be possible.
Robotics & Automation: Advances in AI-powered perception and control have revitalized robotics, with new leasing models driving adoption, particularly in logistics and defense sectors.
Key Insights for Founders & Investors
Capital Barbell: Premium valuations persist in foundational AI startups; other sectors must clearly demonstrate profitability paths. Larger checks are currently being allocated to fewer companies.
Exit Market: IPO opportunities are slowly re-emerging, but turmoil in the global markets are causing uncertainty.
Capital Discipline: Higher interest rates render "growth at all costs" strategies untenable. Companies need to do much more, with a lot less. Fortunately AI helps enable this, so those who adopt to the changing times with survive and thrive.
Talent & Infrastructure Costs: Anticipate elevated operational costs, especially regarding AI talent and computational infrastructure.
The Road Ahead
History shows that each downturn lays the groundwork for the next boom. With cautious optimism, the years 2025–2027 may usher in a new, sustainable cycle driven by AI-native applications, climate innovations, and countless new solutions.
Founders and investors must focus on delivering genuine economic value, innovative differentiation, and strategic alignment with evolving market conditions and regulatory landscapes.
Where do you think Venture Capital is heading next?
