One way to look at the health of our state’s economy is to track two metrics: How much money have startups raised this year and how much money have venture capital firms based here raised to invest in startups in the future?
When these metrics are healthy, you get successful companies like Vertex Pharmaceuticals, Toast, HubSpot or Wayfair, companies that rent offices and labs and employ hundreds or thousands of people.
So let’s look at the data to see how 2025 is shaping up.
If trends from the first three quarters continue into the fourth, the amount of money raised by Bay State startups could be slightly higher this year than in 2023 or 2024 — although it will still be down from 2021’s peak of $35 billion.
But if the same goes for the amount of money raised by venture capital firms here this quarter, that would be a lower level than we’ve seen in a decade: $2.6 billion.
And on the opposite coast, California, which still leads the rankings in both money invested and money raised, is booming thanks to artificial intelligence companies. Money invested in startups in the first three quarters of this year is already a third higher than the 2024 total and is expected to eclipse this state’s all-time high of $164 billion in 2021.
Among Massachusetts companies to raise major venture capital rounds this year: fusion reactor startup Commonwealth Fusion Systems ($863 million); obesity drug developer Kailera Therapeutics ($600 million); the scientific laboratory focused on AI Lila Sciences ($350 million); and AI music creation startup Suno ($250 million).
I asked a trio of venture capitalists to provide color commentary on 2025 – and look ahead to the year ahead.
Michael Greeley, co-founder of Flare Capital Partners in Boston, invests in technologies that support the healthcare industry. He said new leadership at the Department of Health and Human Services, overseen by Robert F. Kennedy Jr., as well as inaction from Congress, have made it difficult for health care companies to understand how or if they will be paid for certain types of services.
“No one can make a real decision about the future of (health care) businesses that rely on government payments” from HHS, which oversees government insurance programs such as Medicare and Medicaid, Greeley said.
Turmoil at the Food & Drug Administration, Greeley added, has made it difficult for startups developing new drugs to understand how long it will take to get approval from the agency — another arm of HHS.
“Entrepreneurs are saying, ‘We don’t even know what a clinical approval process looks like today, (because) the people who should be working on it have been laid off. … The whole infrastructure to get drugs to market has been so compromised.”
These factors have reduced the number of IPOs and large acquisitions in the healthcare and biopharmaceutical sectors, Greeley said, and have increased investor wariness about putting more money into them.
“Compared to recent years, I think 2025 was a good year, sentiment-wise, in the Boston ecosystem,” said Lily Lyman, general partner at Underscore VC, a Boston firm. It highlights investments in “applied AI” – using AI in specific sectors, such as pharmaceutical laboratories –, cybersecurity and robotics as industrial sectors in which this region is giving rise to many promising companies.
Lyman also said that given the level of AI action in San Francisco, it’s already proving difficult for Boston to retain the talented technicians and entrepreneurs who come to universities here.
“I think you can feel it, just the pace of change, the volume and density of talent, the amount of capital being spent” in the Bay Area, Lyman said. “It’s definitely a center-of-gravity moment that’s very palpable.”
Lyman highlighted two AI startups founded by MIT or Harvard dropouts: Cursoran AI programming tool, and Mercorwhose goal is to help companies identify and hire AI talent. Both companies, founded in 2022 and 2023 respectively, are valued by investors at $10 billion or more – and both are headquartered in San Francisco.
She said her company is willing to invest in young startups “while they’re on campus, and if they then move to San Francisco, as an investor we don’t really care. Obviously, as a champion of the ecosystem, we would like them to stay here…”
Another venture capitalist, David Frankel of Cambridge firm Founder Collective, said AI companies in San Francisco, London and Tel Aviv are actively recruiting employees on college campuses around Boston, which could deplete the pool of future founders or local employees.
“There is no doubt that our institutions provide a good hunting ground for many of these AI startups from around the world,” he said.
Frankel said 2025 was a year of “haves and have-nots” when it came to startup fundraising. Two sectors – AI and crypto – have been favored this year, while raising money in many other sectors has been “a struggle”.
What could change in 2025? All three investors said that if the pace of IPOs or acquisitions picks up, it would help demonstrate that startups aren’t just bottomless pits for money — but that they can actually help their investors reap big returns.
Frankel said that if aerospace company SpaceX or AI developer OpenAI went public, they would be “mega IPOs” that “could pave the way for others” to follow.
During the first year of the Trump administration, Greeley said, “I struggled to find a glimmer of hope. … I think, unfortunately, innovation has been equated with immigration, with education, with elitism and they’ve all been conflated.”
Greeley said investors depend on many different factors to help grow successful businesses, including university research in science and technology. With less research funding flowing to universities, taxes on university endowments, and a reduction in the number of visas granted to workers wishing to come to the United States, the current moment seems “hostile to the forces that drive innovation.”