Q2 2025 Tennessee Deal Report

By Jay Teamer, LaunchTN Venture Fellow

2025 Venture Market Outlook – United States (Q1/Q2)

• Q2 slowdown after Q1 surge
  Nationally, venture capital deployment dropped to $69.9B in Q2, nearly 25% lower than Q1. Much of the decline reflects the lack of a single outsized deal, like OpenAI’s $40B raise in Q1, which had significantly boosted earlier totals.
• AI continues to lead
  Five AI deals over $1B in Q2, including Scale AI, Anduril, and Grammarly, pushed AI to 64% of total deal value in the first half of the year. Growth-stage venture activity is on pace for a decade high, driven by strong demand for foundational technologies and platforms with multiple applications.
• Valuations trend upward, but selectively
  Median deal sizes and pre-money valuations rose across nearly every stage, with pre-seed up 42% year-over-year. Investors are concentrating capital in fewer, stronger companies, particularly in the AI sector, while the proportion of smaller rounds continues to decline.
• Liquidity remains constrained
  M&A activity has picked up, but IPOs remain limited. With traditional exits still constrained, secondary transactions are taking on a larger role. An estimated $60B in secondary volume is providing liquidity for LPs, although much of this activity is concentrated in a small group of leading startups.
  

2025 Venture Market Outlook – Southeast Region (Q1/Q2)

Regional performance vs. national trends

• The Southeast is smaller in scale but follows national trends. In Q1 and Q2, the region recorded 1,020 deals involving 1,193 investors, 26 exits, a largest deal of $545M, total capital of $6.52B, and a median post-money valuation of $31M. Over the same period, the United States recorded 10,098 deals with 9,277 investors, 100 exits, a largest deal of $40B, total capital of $173.89B, and a median post-money valuation of $42.75M.
• In the Southeast, capital in Q1 and Q2 was led by SaaS ($2.80B), AI/ML ($1.70B), and a tie between fintech and mobile ($1.08B each). By company count, the region leaned toward AI/ML at 26.75% and SaaS at 25.50%, with health tech at 14.32% and fintech at 12.75%.
• Nationally, the picture was even more AI-weighted, with AI/ML leading at $109.12B and 35.61% of companies, followed by SaaS at $94.44B and 28.85%, big data at $72.13B, health tech at 12.34%, and fintech at 10.06%.

• From Q1 to Q2, deal activity slowed, but valuations rose. Deals declined from 557 to 477, investors from 706 to 590, exits from 4 to 2, total capital from $3.81B to $2.85B, and the largest deal from $454M to $247.43M. At the same time, the median post-money valuation increased from $25.21M to $36.25M, reflecting investors directing larger checks into fewer, higher-quality companies.
• In Q1, the top capital recipients were SaaS ($1.60B), fintech ($724.06M), and AI/ML ($693.49M), with AI/ML also leading company share at 26.78%. By Q2, fintech dropped out of the top three by dollars raised, replaced by mobile ($413.22M), while SaaS ($1.19B) and AI/ML ($1.02B) continued to dominate. Company distribution remained AI-forward at 27.41%, SaaS grew sharply to 24.63%, health tech held steady at 14.35%, and fintech stayed nearly flat at 13.67%. 

Looking Ahead: Venture Outlook for the Remainder of 2025

United States 

• The market is stabilizing but remains sensitive to macroeconomic risks, such as tariffs, Federal Reserve rate decisions, and global conflicts. Investors are expected to stay selective, prioritizing companies with clear growth paths and strong fundamentals.
• AI, defense technology, and health innovation are likely to remain leading sectors for investment. Liquidity will continue to rely on a mix of sparse IPOs, strategic M&A, and a growing secondary market as exit activity recovers gradually.

Southeast 

• The second half of the year is likely to see fewer deals overall, but stronger pricing for top-tier companies. Capital should continue to concentrate in AI/ML and SaaS, while fintech activity remains limited and mobile presents more selective opportunities. With exits still inconsistent, most liquidity is expected to come from secondary sales and M&A.
• Tennessee is positioned to outperform within the region, driven by state programs, like InvestTN, active local funds, and university spin-outs. These factors are expected to keep health tech and AI/SaaS investment activity strong, even if average check sizes decline from Q1 levels.

 

TN Deal Activity Overview

• Tennessee logged 66 deals in Q1 and 65 in Q2. Despite a rebound from Q4 2024 to Q1 2025 followed by a dip in Q2, the first half of 2025 has already surpassed all of 2024 and outpaced H1 2024, as well as broader Southeast and U.S. growth. This signals a strong start with a seasonal cooldown rather than a loss of momentum.
• Capital deployment in H1 2025 reached $771.3M compared to $436.4M in H1 2024, with $459.4M in Q1 and $311.9M in Q2. The largest deal was $130M in Q1/Q2 versus $95M in H1 2024, highlighting larger check sizes and a front-loaded start despite the usual Q2 reset.
• Investor-to-deal ratio: Q1 had 93 investors across 66 deals (1.41 per deal). Q2 tightened to 61 investors across 60 deals (1.02 per deal), signaling smaller syndicates.
• Interpretation + key drivers: Q1 was front-loaded, followed by a pause in Q2. Fewer investors per deal alongside a higher Q2 median post-money indicate more concentrated, higher-conviction rounds, shaped by fund seasonality, macro selectivity, and consistent state and local follow-on support.

 

Capital by Sector

• Capital invested by vertical: Q1 was led by health tech, wellness, and fintech, while Q2 shifted toward fintech, AI/ML, and SaaS. For H1 overall, the top categories by dollars invested were health tech, fintech, and AI/ML.
• Largest vs most active: In Q1, capital was concentrated in health tech and wellness, while company counts leaned toward health tech, AI/ML, and SaaS. In Q2, both dollars and deal activity aligned around fintech, AI/ML, and SaaS.
• Misalignments or concentration: In Q1, activity was skewed by a few large wellness and fintech rounds, while AI and SaaS drew many smaller checks. In Q2, funding and deal activity became more concentrated, aligning around fintech, AI/ML, and SaaS.
• What’s growing or fading: Health tech remained steady across both quarters, while AI/ML gained momentum into Q2. Fintech lost share by company count in Q1 but returned to the top three by capital in Q2.
• Key drivers: Included investor preference for scalable software and AI platforms. Q1 saw larger average checks in the wellness and fintech sectors, while Q2 brought broader participation in AI and SaaS.

Company Distribution by Sector

• Deal count by sector: Q1 was led by health tech, AI/ML, and SaaS. In Q2, leadership shifted to fintech, AI/ML, and SaaS. Across H1 overall, health tech remained steady while AI/ML and SaaS were consistently active.
• Comparison to capital allocation: In Q1, company counts leaned toward AI/ML and SaaS, while capital was concentrated in health tech and wellness. By Q2, both company counts and dollars converged around fintech, AI/ML, and SaaS.
• Blind spots vs cluster strengths: Tennessee’s strengths are evident in health tech, AI/ML, and SaaS. Blind spots remain in sectors outside software and data-heavy fields, where deal activity has lagged despite broader investor interest.
• Alignment with national and regional trends: Tennessee reflects national patterns with strong momentum in AI/ML and software, while also maintaining a durable base in health tech.
• Key drivers: Capital and deal flow have been pulled toward health tech through milestone-driven raises and toward AI through accelerating enterprise adoption.

Investor Composition & Syndication Trends 

• New vs repeat investors (Q1 vs Q2): Of the 65 investors participating in Tennessee companies in Q2, only six were repeat investors from Q1, including InvestTN (LaunchTN). This pattern is not unusual, as many investors typically deploy in early Q1 and then focus on evaluating their portfolios in Q2 with fewer follow-on checks. The presence of 59 new investors in Q2 is a positive indicator of continued market interest and expansion.
  
• Investor-to-deal ratios: In Q1, 93 investors participated across 66 deals. In Q2, this tightened to 61 investors across 60 deals, showing smaller syndicates.
• Syndication size trends: Fewer investors per deal in Q2 suggest tighter, higher-conviction syndicates and faster decision-making.
• Interpretation: ecosystem maturity, trust, and access: The decline in investors per deal alongside rising median valuations suggests that trusted local investors are concentrating capital into stronger opportunities.
  
• Key drivers: Macro caution is encouraging disciplined syndication, while state and local programs are promoting repeat follow-on participation rather than large, mixed investor groups
  

Capital Deployed and Valuation Trends

• Quarterly breakdown: In Q1, Tennessee companies raised $459.4M at a $21M median post-money valuation.
• Q2 slowed to $311.9M but with a higher $31M median post-money. Across H1, total capital reached $771.3M, with the largest deal at $130M.
  • Evergreen Nephology – 130M 
  • HubSync – 100M
  • Rain – 72.3M
• Interpretation of shifts: The Q2 slowdown paired with a higher median post-money indicates that capital is concentrating in more mature or capital-intensive companies.
• Key drivers: Seasonal pacing in deployment and valuation benchmarks in AI and health tech have contributed to higher median valuations.

Geographic Concentration of Deals 

While a large portion of Tennessee’s Q2 VC activity remains concentrated in Nashville (23 deals), Knoxville (9), Memphis (4), and Chattanooga (4), encouraging signs of decentralization are beginning to emerge.

In fact:

• 25 out of 65 Q2 deals (~38.5%) occurred outside of the four major metro areas, signaling increased startup activity in smaller or emerging markets.
• This represents a notable shift compared to prior years, suggesting growing interest in non-traditional hubs for innovation and entrepreneurship.
• Over the past 2–3 years, the share of non-metro deals has increased steadily, driven by lower operating costs, remote work flexibility, and the development of local ecosystems (e.g., university spinouts, accelerators, and angel networks).
• These emerging hubs offer an opportunity for more equitable capital distribution across the state and may be increasingly relevant as founders seek alternative geographies that offer both talent and affordability.
  

Notable Deals 

• Evergreen Nephology (Nashville) –130M – Provider of chronic kidney disease care management services focused on improving patient outcomes
• HubSync (Franklin, TN) – $100M – Developer of a tax integration platform for accounting firms.
• Standard Nuclear (Oak Ridge, TN) – $42M – Renewable energy company focused on nuclear-based solutions.
• Voom Medical Devices (Brentwood, TN) – $30M – Manufacturer of advanced medical equipment.
• Anesi (Piney Flats, TN) – $14.53M – Developer of thermally-driven heat pump technology.
• ProNova Solutions (Maryville, TN) – $13.5M – Developer of compact proton therapy systems for cancer treatment.
• Sonata (Brentwood, TN) – $11.7M – Financial software company for wealth and asset management.
• SOMAVAC (Memphis, TN) – $8.43M – Developer of a sustained vacuum device for post-surgical fluid management.
• Deacon Health (Nashville, TN) – $7M – Developer of a specialty care management platform for healthcare providers. (Source: Pitchbook Southeast as of 8/15/25)

Where Tennessee Is Headed?

Signals for H2 2025

• Expect continued capital concentration in AI, health tech, and fintech, with higher-conviction rounds and tighter syndicates.
• Non-metro growth and state/local follow-on support will drive activity beyond traditional hubs.

How Tennessee Compares to the National Trajectory

• Outpaced national and Southeast growth in both deals and dollars for H1 2025.
• Sector focus on AI/ML, SaaS, and fintech mirrors U.S. trends, while health tech remains a state-specific anchor.
  

Long-Term Outlook

• Tennessee’s investor behavior and deal quality reflect a maturing ecosystem with growing local trust and institutional participation.
• Capital will likely continue flowing toward AI infrastructure, vertical SaaS, and digital health, with expanding early-stage depth across the state.

Perspectives from InvestTN

Internal reflections, commentary, or qualitative takeaways from conversations, deal flow, or advisory activity

• The momentum in Tennessee is undeniable. Our state is outpacing both national and Southeast trends. I believe that what looks like a Q2 slowdown is more of a seasonal reset—early front-loading and then a pause during the holidays and winter months—rather than any loss of confidence.
• AI, SaaS, and fintech are rising fast, while health tech remains the state’s anchor. Tennessee is leaning into scalable, data-driven sectors, with AI/ML gaining momentum quarter over quarter. However, healthtech continues to provide durable depth to our market, putting us in a position of strength compared to other regional ecosystems.
• Syndicates are smaller, conviction is higher. We’re seeing fewer investors per round, but at higher post-money valuations—an indicator that trusted capital is concentrating behind Tennessee’s strongest companies. Individual angel investors are playing a vital role in the ecosystem – and programs like InvestTN are helping reinforce with catalytic support!
• Innovation is spreading beyond Nashville. Nearly 40% of Q2 deals happened outside our four major metros. That decentralization reflects growing local ecosystems and validates our belief that great talent and ideas are statewide, and capital must be too!