Financing Innovation from Startup to IPO

Technology companies are navigating a shifting financing environment marked by selective venture investment, greater competition from private credit and a still-evolving market for initial public offerings. Mike Lederman, head of Western Alliance Bank’s Innovation Banking Group, has a front-row view of those changes through the bank’s work with companies across the growth cycle, from early-stage startups to publicly traded businesses. The group serves more than 1,500 clients nationwide and maintains over 500 borrowing relationships, including loans to private equity- and venture capital-backed companies.

CM: How would you characterize the current financing environment for technology and innovation companies?

ML: The financing environment is healthy but highly selective. There is significant capital available across venture, growth equity, private credit, venture debt and traditional banking channels. The challenge is not the availability of capital, it’s where that capital is flowing. Investors and lenders are concentrating capital behind companies with strong management teams, clear product-market fit, and accelerated historical or projected revenue growth. For the highest-quality companies, financing markets are competitive. For companies with weaker fundamentals or unclear differentiation, raising capital remains challenging.

CM: Which technology sectors are attracting the strongest interest from lenders and equity investors?

ML: AI, including infrastructure, developer tools, data platforms and enterprise applications. Beyond AI, we’re seeing significant interest in Cybersecurity, Defense technology, Digital infrastructure and cloud computing, Fintech, Data and automation businesses. Within our own pipeline, we continue to see strong activity around AI-native businesses, defense technology and certain hardware-related opportunities where customers have meaningful technological differentiation.

CM: How has the artificial intelligence investment boom affected capital availability for companies outside the AI sector?

ML: AI has attracted a disproportionate share of investment capital. That has created a bifurcated market. On one hand, AI companies are benefiting from unprecedented access to capital and larger funding rounds. On the other hand, quality non-AI companies are still getting funded though the bar has risen. Investors are placing much greater emphasis on capital efficiency, revenue quality, retention metrics and unit economics. The net result is that capital hasn’t disappeared for non-AI companies, but investors are being far more selective and demanding stronger business fundamentals before writing checks.

CM: Are investors becoming more disciplined about AI valuations, revenue models and capital requirements?

ML: Yes and no. Earlier in the AI cycle, investors often focused primarily on technological potential and market opportunity. However, we had one VC tell us last week that “valuation is irrelevant” in the competition to invest in top AI companies. Investors seem to be focusing on customer adoption, monetization, gross margin durability, capital efficiency, and long-term competitive advantage. Investors are asking tougher questions around compute costs, infrastructure spending requirements, and whether AI applications can ultimately generate durable returns on capital.

CM: What indicators suggest that the IPO market is becoming more receptive to technology companies?

ML: AI has helped reopen the IPO market, and we’re beginning to see indications of broader participation. I wouldn’t say the window is wide open for every venture-backed company. Investors remain selective around growth, profitability and valuation. But for high-quality companies with sufficient scale and a compelling financial profile, the IPO has clearly become a viable strategic option again (assuming success on the anticipated Anthropic and OpenAI IPOs).

CM: Are more mature companies preparing to go public, or are they pursuing acquisitions, secondary transactions and continuation financing instead?

ML: We are seeing more mature companies prepare for the public markets, particularly the highest-quality businesses, but I wouldn’t characterize this as a wholesale return to the traditional IPO path. Companies and sponsors have many more liquidity alternatives today. Secondaries have become institutionalized, continuation vehicles are increasingly mainstream, and strategic M&A remains very relevant.

So rather than choosing one path early, the best companies are getting IPO-ready while preserving the ability to pursue a strategic sale or private-market liquidity solution. For us as a bank, that longer period of private ownership can actually create attractive opportunities around growth financing, acquisition facilities, fund liquidity and sponsor relationships.

CM: What is your outlook for venture funding, technology M&A and IPO activity over the next 12 to 18 months?

ML: For venture funding, we expect overall activity to remain strong, although capital will likely stay concentrated among category leaders and companies demonstrating clear differentiation. AI will continue to attract substantial investment, but I expect investors to continue to broaden their focus to other areas of innovation as attractive opportunities emerge. For M&A, we believe activity will accelerate. Strategic acquirers have strong balance sheets, private equity sponsors have significant dry powder, and many companies are looking for ways to acquire technology capabilities, talent and market share.

For IPOs, we expect a gradual reopening in 2027 once we see the timing / completion of the IPO’s for OpenAI and Anthropic. Overall, our outlook for the innovation economy is positive. Capital is available, exit markets are improving, and the pace of technological innovation remains strong. The companies that combine innovation with discipline should find a supportive financing environment over the next 12 to 18 months.