A Tech Investing Outlook For Mid-2025 And Beyond
Ben Forlani is founder & CEO of Dedale, delivering strategic intelligence to tech investors across Europe and North America.
Tech investors on both sides of the Atlantic are navigating a complex mix of optimism and caution. In the first quarter of 2025, M&A deal volume in software and tech-enabled services increased by nearly 5% compared to Q4 2024 and rose 22.2% year-over-year from Q1 2024, reflecting renewed momentum in tech dealmaking after a cautious 2023. However, the second quarter presented a more nuanced picture, shaped by geopolitical uncertainty, shifting valuation trends and a changing appetite for growth versus profitability.
A Market In Pause, But Poised To Reactivate
Following a strong rebound in Q1, driven by pent-up demand from both buy and sell sides, Q2 has seen a more cautious tone settle in. Macroeconomic and geopolitical volatility, ranging from U.S. policy shifts to ongoing European conflicts, has caused many investors to adopt a wait-and-see approach.
Yet, there’s a sense that this pause may be temporary. Deal teams across Europe and North America are actively preparing for a more dynamic post-summer environment. Liquidity pressures remain high, and sooner or later, sellers and buyers will need to meet halfway on pricing. That convergence could set the stage for a more robust H2.
Scarcity Is The New Growth Premium
In the post‑2022 era, investors have shifted from a “growth-at-all-costs” mindset toward sustainable, capital-efficient business models. But in recent quarters, a new dynamic has emerged: companies capable of maintaining strong, profitable growth have become increasingly rare and, therefore, more highly valued.
According to Adams Street Partners’ 2025 Global Investor Survey, investors are placing greater emphasis on durable growth characteristics, especially in sectors aligned with long-term technological transformation. The report highlights a growing premium for companies that combine high revenue growth with structural resilience and capital discipline. Scarcity, in this context, has become a proxy for quality and a driver of valuation.
A Rational Reset With A Transatlantic Divide
Looking at the big picture, tech valuations have largely normalized since the 2021-2022 correction. Multiples have reverted to long-term averages, creating a healthier environment for dealmaking.
That said, a widening gap between U.S. and European tech valuations is becoming more pronounced. According to findings from my company, Dedale, North American software companies are now trading at a 54% premium over their European counterparts, with median EV/sales multiples of 6.7 times in North America and 4.4 times in Europe. This spread likely reflects stronger average growth trajectories in the U.S., alongside a faster rebound in investor confidence and deal velocity.
Sector Divergences: AI Wins, Supply Chain Loses Momentum
We’re seeing a divergence in how various segments of the tech ecosystem are absorbing today’s volatility. Sectors once buoyed by pandemic urgency—such as supply chain management software—are seeing a correction. As geopolitical fragmentation becomes the new norm, the pressure to optimize global trade flows has eased, and investor enthusiasm has followed suit.
Conversely, segments rooted in core infrastructure—data platforms, DevOps tooling and products tied to the office of the CIO—have proven more resilient. These are the technical foundations enabling AI adoption at scale, and they’re benefiting from durable tailwinds.
Looking Ahead: Three Questions Investors Should Ask
As we head into the second half of 2025, tech investors should focus on three core questions:
1. When will the valuation gap close? Many companies that raised at high multiples in 2020-2021 still haven’t reset expectations. Will sellers capitulate, or can they hold on until growth rebounds?
2. Where will growth come from next? The scarcity premium for high-growth companies isn’t sustainable unless the broader market begins to accelerate again.
3. How can we add real value in a polarized market? The best investors are focusing on specialization, building domain expertise and proactively engaging management teams with a value-creation mindset, not just capital.
To navigate this environment effectively, investors can rely on a framework that emphasizes signal over noise:
• Prioritize fundamentals over narrative. In uncertain climates, revenue quality, margin trajectory and retention metrics matter more than top-line hype.
• Adopt a barbell approach to risk. Balance capital allocation between proven, profitable platforms and selectively high-growth innovators in niche verticals.
• Stay close to the ground. Local market intelligence on pricing, competition and sentiment can often yield more actionable insight than top-down data.
The current tech investing climate is not without its challenges, but it also offers a window of opportunity for those willing to navigate complexity with discipline and creativity. Scarcity, specialization and smart positioning are the new drivers of success. As we move into the second half of 2025, those who stay grounded in fundamentals while keeping an eye on transformative shifts like AI and sector digitization will be best positioned to lead.
The information provided here is not investment advice. You should consult with a licensed professional for advice concerning your specific situation.
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