ESO's Monthly Start-Up

February 2025

2024 Year in Review

The big story continues to be AI. According to Crunchbase, AI startups received $100B in VC funding last year, marking an 80% increase from 2023.

The same Crunchbase article highlights that VC funding in 2024 remained consistent with 2023 levels, and resembles the annual totals seen between 2018 and 2020. Notably, AI companies accounted for over 30% of the $314B invested globally. To dive further into this, we’ve broken out the Crunchbase data to focus on AI vs “non-AI” investments (see below):

All data per Crunchbase

It’s evident that 2021 and early 2022 were outlier years for venture funding. Excluding those boom years, overall funding has remained flat. However, the standout takeaway is that AI is propping up venture capital spending, with “non-AI” funding now down nearly 30% from the 2018-2020 average.

While some companies may now identify as AI-focused to capitalize on the trend, the surge in AI funding signals a significant shift in VC priorities: a rapidly growing bull market in AI and adjacent sectors, contrasted by a stagnant—or even declining—interest in funding other industries.

We’ve previously discussed the IPO backlog, and Crunchbase provides further insights. Unicorns (private companies valued at $1B+) raised nearly $250B in 2024, pushing their total collective funding past $1 trillion. Much of this funding was directed toward established billion-dollar companies, as shown in the graph below, which tracks newly minted unicorns by month since January 2020.

All data from Crunchbase

This graph clearly illustrates the lingering presence of companies that didn’t cross the finish line during the 2021 funding frenzy. Many unicorns, valued at their peak in 2021, have yet to see their valuations tested again by public or private investors.

That said, strong IPOs from companies like Reddit, Astera Labs, Rubrik, and most recently ServiceTitan, offer a glimmer of hope for those eyeing a public debut in 2025. However, the overall volume of both M&A and IPO exits remains relatively low, despite a slight year-over-year increase. It seems many companies are still cautious about pursuing an exit, perhaps waiting for more favorable market conditions or reduced volatility as the new administration settles in.

Why this matters: Of the $314B invested in 2024, $250B went to unicorns, reinforcing the trend of companies staying private longer. For employees, this often means extended timelines to access liquidity for their equity, pushing more individuals toward the secondary market or tender offers when available.

The big question remains: What’s next for this massive crop of unicorns? How many will successfully exit and return value to investors? How many will fall short? One area of consensus is that any resurgence in IPOs or exits could inject fresh capital into VC funds, fueling the creation of the next generation of unicorns—likely with a heavy focus on AI-driven innovation. However, most agree that to restore balance, we’ll also need to see some companies fail, resetting valuations and expectations for the ecosystem.

Tips of the trade

A section where we provide helpful tips for anyone with stock options or shares at private companies.

The Advantage of Early Exercise

Early exercise is a unique opportunity offered by some startups that allows employees to purchase their stock options before they vest. This strategy can be particularly beneficial for employees who believe in their company’s future and want to minimize their tax liability over time.

The main advantage of early exercise is that it enables you to lock in the Fair Market Value (FMV) at the time of exercise, which is typically lower in a company’s earlier stages. By doing so, you reduce the taxable spread between your exercise price and the FMV, potentially saving a significant amount on taxes if the company’s value grows.

For example, exercising early might allow you to pay minimal taxes upfront based on the FMV at exercise, rather than higher taxes later as the FMV increases with the company’s success.

Key Considerations for Early Exercise:

  • Affordability: Only exercise as many options as you can afford to purchase.

  • Vesting Likelihood: If you’re unsure how long you’ll stay at the company, limit your early exercise to the number of shares you’re confident will vest during your tenure.

  • 83(b) Election: If you do decide to early exercise, make sure to file an 83(b) election with the IRS within 30 days of exercise. This allows you to pay taxes based on the value at the time of exercise, avoiding higher tax liabilities as shares vest.

Keep in mind that not all companies offer early exercise. If yours does, it’s an opportunity worth considering, especially in today’s market conditions where FMVs remain relatively low. However, early exercise only pays off if the company succeeds in the long run, so do your due diligence before making a decision.

Funding your option exercise can be expensive and a require a large capital outlay. Feel free to reach out to us to discuss your options for partnering with ESO to exercise your options risk-free.

The ESO Fund does not provide legal, financial, or tax advice.

Public Multiples Check-in: "Yesterday's Price is not Today's Price"

Markets ended higher for the first month of 2025, though the gains are on shaky ground. There’s concern surrounding interest rates, AI disruption, and tariffs that are all impacting sentiment going into February. The S&P ended up 2.7%, the Nasdaq 1.6%, and the DJIA, at 4.7% for January. Multiples year-over-year remain strong, with FinTech showing the only decline over the period.

Why this matters: There is still a lot up in the air surrounding both DeepSeek (specifically if they actually did what they said they did) and how prolific tariffs will end up being this year. Both of these events are poised to be potentially major market disruptors, we will be keeping a close eye on them.

February's Top Ten:

  1. The difficult startup environment has been continuing into 2025, with another once high profile VC-backed startup shutting down. Level, a benefits startup focused on providing flexible employee benefits, shut down due to failing to find a buyer. The company had burned through $27 million of investors’ cash.

  2. AI is continuing to dominate VC news, with Anthropic to raise $2b in new funding at a $60 billion valuation. Venture capital firm Lightspeed is in talks to lead the round.

  3. Whatnot, a livestream shopping app, also had a big raise this past month (even if the capital wasn’t in the billions). The company raised $265M, putting the valuation at nearly $5 billion.

  4. There was much hullabaloo this month about TikTok shutting down, and while the ByteDance subsidiary did go dark briefly, it was back up and running the same day. It’s fate does remain unclear though as it continues to seek a buyer to alleviate national security risk issues.

  5. OpenAI is teaming up with SoftBank and Oracle on a $500B data center project. The joint venture, called the Stargate Project, will begin with a large data center project in Texas and eventually expand to other states.

  6. Trump signed some crypto executive orders this past month, ordering the creation of a cryptocurrency working group tasked with proposing new digital asset regulations and exploring the creation of a national cryptocurrency stockpile. The orders make good on his promise to quickly overhaul U.S. crypto policy.

  7. It hasn’t been all smooth sailing for AI companies this month though, with Chinese startup DeepSeek launching an incredible impressive AI model. The most notable part? They say it is on par or better than industry leading models in the US, and they were able to do it at a fraction of the cost. Time will tell if this is actually truth or not, but regardless, OpenAI might have some major competition on their hands.

  8.  Data provider Snowflake is in talks to acquire Redpanda, a data analysis software startup. Redpanda was valued at around $500 million in 2023, and the acquisition could upgrade Snowflake’s artificial intelligence services, an area where the company has been lagging rivals.

  9. It feels like every other newsletter we are mentioning another OpenAI raise, but they are back at it again! The company has been reported to be in talks with Softbank to lead a round of up to $40 billion at a valuation of $300 billion. This would be nearly double the valuation the company achieve in its October funding round.

  10. It’s been a minute since we have focused on layoffs, but Stripe this month had a pretty large one. The company cut 300 jobs, about 3.5% of total workforce, in product, engineering, and operations. Despite the cuts, the company says its going to be continuing to hire this year and plans to expand headcount by 17% by the end of the year.

Why this matters: US AI companies are continuing to get a bunch of money and VCs are going in heavily. It will be interesting to see how this evolves this year as other countries (most notably China and their DeepSeek model) disrupt the paradigm that has been established that getting to a great AI model costs a ton of money. If DeepSeek truly did made a great, cheaper AI model, a lot of these investors shelling out all this money may be stuck holding the bag.

Startups that are hiring!

Open positions are per the company's website.

About ESO Fund

ESO Fund empowers startup employees to turn their stock options into reality. Since our inception in 2012, we've been dedicated to providing risk-free funding for the exercise of stock options, ensuring that individuals can seize the opportunities embedded in their equity.

Our mission is simple: to make equity compensation accessible and understandable. Through our innovative solutions, we've assisted countless individuals at 650+ companies in realizing the full value of their stock options, contributing to the success stories of numerous startup employees.

For more information on ESO Fund and how we can help fund your option exercise, please refer to our website at www.esofund.com!