Here’s a surprising statistic: In Q1 2025 global VC increased to $126.3 billion. However, this is far from a recovery — the number of funded startups dropped to 7,551 globally. 

The current reality is that most of late-stage capital is going towards established AI companies. This is creating an imbalance in the market where big companies like OpenAI and Anthropic are securing record amounts of funding, while promising startups in other sectors struggle to capture investor attention.

Uncertainty makes investors more cautious

With rising geopolitical tensions and trade war concerns between the US and the rest of the world, VCs are concentrating their bets on what they perceive as the safest, highest-potential sector. Right now, that’s AI.

Besides the large LLM deals, startups focusing on industry-specific applications of AI are also drawing special attention from investors. Two of the biggest deals this past quarter includes Sweden-based preventative healthtech company Neko Health ($260 million) and UK-based AI-powered video communications company Synthesia ($180 million).

Nonetheless, there are two other sectors investors are keeping an eye on in 2025:

1) Defense tech

The geopolitical environment is creating fertile ground for defense technology startups. Companies developing solutions around autonomous systems, anti-drone technology, and secure communications are attracting significant investment from VCs. The US saw the largest defense tech deals during Q1 2025, including a $600 million raise by Saronic Technologies, a $240 million raise by ShieldAI, and a $250 million raise by Epirus.

2) Climate and energy solutions

Alternative energy, particularly nuclear and fusion technologies, also continues to attract capital as the need for new energy sources becomes more pronounced. In addition, this has also created a powerful tailwind for startups addressing efficiency in energy consumption and production.

Despite the AI hype, the signals of today’s market are clear.

While AI is dominating headlines and attracting historic funding, it’s not the full story. Savvy investors are quietly backing startups in defense tech and climate solutions—areas shaped by urgent, long-term global challenges. In 2025, the smartest capital isn’t chasing trends; it’s anticipating what’s next. Follow the trends in our newsletter.