Key Takeaway
Private markets posted a powerful first quarter in 2025, driven by strong institutional demand, valuation growth, and momentum in artificial intelligence and M&A. However, risks tied to public market volatility, interest rate policy, and deal concentration warrant a cautious outlook. Execution will matter more than ever in the quarters ahead.
Transaction Activity Accelerates Across the Board
Private market activity surged in Q1 2025. Caplight reports $506 million in closed secondary trades, up 35 percent quarter-over-quarter. The average transaction size increased by 41 percent, reaching $3 million. Structured trades, including SPVs and forward deals, accounted for nearly half of total volume—evidence of a more institutional, deal-engineered market.
Valuations Are Up, but Cyclical Patterns Remain
The Caplight Top 20 Index climbed 13 percent year-to-date, outperforming the Nasdaq 100’s 9 percent. Since 2021, the index has delivered an 81 percent gain, compared to 51 percent for the Nasdaq.
While pre-IPO assets are partially insulated from public market shocks, they tend to follow broader market moves over time. Caplight data shows a three to six month lag between public and private market reactions, a dynamic that should be top of mind as public equities face pressure.
Stable Rates Supported Growth, but Pressure May Return
Caplight underscores the inverse relationship between interest rates and private valuations. From early 2022 through mid-2023, rising rates led to a 52 percent decline in pre-IPO valuations. Since rates stabilized in Q3 2023, valuations rebounded 109 percent.
M&A Takes the Spotlight as IPO Window Narrows Again
Public market volatility shut the door on several Q1 IPOs, but M&A stepped in with renewed force. Caplight reports $54 billion in venture-backed M&A activity, the highest since 2021. Standout deals included Google’s $32 billion acquisition of Wiz and a flurry of consolidation in crypto and enterprise software.
Private AI Leads the Innovation Trade
Caplight’s Private AI Index rose 22 percent since the 2024 U.S. election, compared to 4 percent for the Public AI Index. Institutional capital is favoring private AI companies with specialized models, high margins, and rapid scaling potential.
As large language models continue to reshape enterprise workflows, the private AI sector is positioned as a dominant capital allocation theme.
Conclusion
Q1 2025 reaffirmed the strength and sophistication of the private markets. Institutional capital is active, liquidity is improving, and innovation-driven sectors are outperforming. But investors should not mistake momentum for immunity. As macro conditions evolve, deal selectivity, structural advantages, and disciplined underwriting will separate strong allocators from those chasing the next wave.
Source: Caplight
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