Global startup report shows sharp drop in investor confidence, rise of AI-native firms

For more than a decade, the global startup economy told a story of rapid growth. Venture capital was flowing, new unicorns were being minted almost weekly, and cities around the world were racing to claim their spot on the innovation map. 

But 2025 marks a turning point.

Startup Genome, in partnership with the Global Entrepreneurship Network, today released the Global Startup Ecosystem Report (GSER) showing that total ecosystem value around the world has fallen by 31% between the second half of 2022 and 2024. Even among the top 20 ecosystems, the median drop was 24%. 

These are not minor shifts. They reflect a dramatic break from the record-setting pace that defined startup activity for much of the 2010s and early 2020s. 

The 2025 GSER is built on data from more than 5 million companies across 350 ecosystems. The trends it captures are global, but the decisions it points to are local. 

The broader economic picture has cooled, and capital is no longer as abundant. 

For many founders, especially outside the most capital-rich regions, the new reality is forcing a change in strategy.

But the decline is not uniform. Some ecosystems are still growing. Others are adapting quickly to shifts in technology and capital allocation. 

Beneath the surface of global contraction is a deeper story of realignment of priorities, sectors, and strategies that is setting the stage for a new phase of innovation.

AI is no longer a sector — it’s the centre of gravity

While many startup sectors experienced contraction, one continued to rise. 

In the past year, funding for artificial intelligence and Big Data increased by 33%, making it the fastest-growing subsector globally. These technologies now attract 40% of all global venture capital, up from just 26% in 2021.

That growth is not evenly distributed, but the trend is undeniable. 

AI is not just another area of opportunity. It is becoming the baseline infrastructure for the next generation of startups.

“SAAS is dead, just like package software died rapidly from the launch of Netscape in 1992,” Startup Genome CEO, JF Gauthier, said. ““In that way, we are in 1994 again.” 

The comparison is stark, but fitting. 

Just as the internet rewired the global economy in the 1990s, AI is beginning to reshape the conditions for innovation, talent, and competitiveness.

What this means for founders is simple: AI will not be a value-add or an optional layer. 

Within five years, nearly every tech startup will be AI-native by design. That includes companies in sectors as varied as life sciences, climate, logistics, finance, and education. AI will be built into the foundations of products, operations, and business models. 

The implication for investors and governments is equally clear: supporting this transformation will require new priorities, and faster timelines.

Yet, despite its global implications, the AI economy is currently dominated by just two countries. More than 90% of all venture capital flowing to AI-native startups in the past two years went to the United States and China. Silicon Valley alone captured 63% of funding to AI-native companies founded in 2023 and 2024. This leaves limited room for other ecosystems to compete unless deliberate actions are taken.

The GSER makes the case that most public investment to date has focused on AI infrastructure, talent strategies, and academic research. While necessary, these investments often stop short of supporting the startups actually building AI applications. 

Early-stage companies, which the report notes are the number one engine of job creation, are being left out of the funding mix. Startup Genome calls for at least 25% of AI transition budgets to be directed toward startup development. Without that rebalancing, many regions risk missing the economic upside of this technological shift.

Resilience, reordering, and what comes next

The downturn in ecosystem value is significant, but it is not universal. 

Some cities are showing signs of resilience and even upward momentum. Shenzhen, Seoul, Tokyo, Paris, Shanghai, and Philadelphia are all named in the report as ecosystems that gained ground in the global rankings. These are not cities that have the most capital. They are cities that moved early in emerging sectors, built strong founder support systems, and aligned their policy and talent strategies with future market demand.

Editor’s note: This podcast summary is entirely generated and voiced by AI.

Canadian ecosystems didn’t post breakout growth like some of their emerging market counterparts, but they showed signs of steady strength. 

Cities like Toronto-Waterloo, Montreal, Calgary, and Edmonton continue to benefit from sector diversity across AI, cleantech, life sciences, and quantum, along with affordable talent and high quality of life. While the report doesn’t position Canada as a global outlier, its stability, policy alignment, and cost advantages could offer a long-term edge as the global reset unfolds.

In contrast, many cities that had been rising quickly in earlier reports have now stalled or dropped. 

This divergence suggests that ecosystems can no longer rely on momentum alone. The new conditions reward focus, execution, and the ability to build advantage in sectors like AI, life sciences, fintech, and cybersecurity. 

It’s not simply about having the presence of startups, but the right mix of funding, specialization, and global relevance.

In the post-pandemic years, capital was cheap and growth was everywhere. Now, ecosystems are being tested. 

The cities that thrive in this new chapter will not be those with the flashiest marketing or the biggest trade shows. They will be the ones that use data to guide investment, strengthen founder pipelines, and respond quickly to the needs of emerging industries.

AI is also reshaping how work happens and where jobs are created. 

The report estimates that more than 30% of jobs in every country will be affected by AI at an accelerated pace. 

At the same time, AI is expected to generate almost as many new jobs. 

The outcome will depend on whether ecosystems can support talent transitions and build companies fast enough to absorb that change. 

Startup Genome’s message is direct: To compete in this new era, startup ecosystems must move beyond legacy thinking. Infrastructure and research alone will not unlock growth, and local governments and economic leaders need to create conditions where AI-native companies can emerge, raise capital, and scale. 

Globally this is an active contest, not a theoretical opportunity and those who move first will shape the rules.