Eyes on 2025: Three Trends We’re Watching in the “Year of Integration”
Head of Citi Ventures
Gen AI is on the rise, embedded lending shifts into overdrive and e-commerce gets hyper-personalized
As an active year in the startup ecosystem comes to an end, we at Citi Ventures are once again turning our eyes to the future.
If 2023 was the “year of contradictions,” 2024 could be seen as the “year of optimism” in the tech sector: optimism that the Federal Reserve would start to lower interest rates, that startup funding and M&A/IPO activity would tick up as a result, and that Gen AI would begin to deliver upon its vast potential and drive positive business outcomes at scale. That optimism seems to be bearing out, albeit slowly: while global venture funding continued to decline through Q3 2024, M&A activity has steadily increased amid ongoing Fed rate cuts and enterprise Gen AI spending has surged as companies move from experimentation with to adoption of the game-changing technology.
Looking ahead to 2025, we expect many of this year’s key trends to accelerate, fueled by lower interest rates and a tempered regulatory environment. Here are three significant developments we expect to see in 2025, which we’re calling the “year of integration”:
- Gen AI reports for duty
As the generative AI revolution enters its third year, companies across industries and around the world are moving from experimenting with the technology to embedding it throughout their products, processes and tech stacks.
As they do so, companies will need to develop new systems and adopt new solutions to help onboard and secure Gen AI-based tools before giving the tools access to sensitive data. From managing the chatbot identity lifecycle to monitoring transactions between AI agents, integrating “AI co-workers” into business workflows will present a host of new challenges for enterprises — and thus of new opportunities for tech entrepreneurs.
While we expect that most of next year’s Gen AI integrations will cluster around common early use cases such as customer service and knowledge management, we also anticipate a marked uptick in the adoption of Gen AI security tools like those provided by our portfolio company Lakera. Amid a rising tide of cybersecurity threats — including some that leverage AI — and a global shortage of cybersecurity experts, these tools can help enterprise security teams dramatically increase their productivity and adapt in real-time to the evolving cyber threat landscape.
As the first round of Gen AI tools — mainly large language model (LLM)-based copilots — enter production, we predict that enterprises will begin experimenting with the next wave of Gen AI innovations, including fit-for-purpose small language models (SLMs), automated prompt optimization and autonomous AI agents like those used by our portfolio company Norm Ai. - Hyper-personalization reaches new heights in retail
In the Future of Commerce, hyper-personalization is the name of the game. Advances in AI, machine learning (ML), the Internet of Things (IoT) and more are helping a wide range of merchants — especially online merchants — anticipate their customers’ desires and offer them shopping experiences tailored to their unique needs and circumstances.
Thus far, hyper-personalization has largely meant making product recommendations based on a user’s digital footprint. In 2025, we expect to see many e-commerce retailers take the next step in their journeys by partnering with AI-based startups that can help them offer personalized discounts, customized return policies and other targeted incentives designed to get shoppers to click “Buy Now” and come back for more. - Embedded lending fuels the next phase of fintech sector growth
While venture investment in the fintech sector continued to decline this year, with global fintech deal volume hitting its lowest point since 2017 in Q3 2024, we anticipate that it will start to bounce back next year as the macro factors mentioned above begin to play out.
We predict that that resurgence will be led by embedded lenders, fintechs that integrate lending services into non-financial digital platforms. Thanks to their built-in distribution channels, enhanced underwriting capabilities, attractive margin profiles compared to embedded payments and insurance, and lower costs of capital due to moderating interest rates, we expect to see many venture capital firms return to the embedded lending investing table — where Citi Ventures and our Citi investing partners have been all along.
Of course, these predictions are not mere comments on how we believe next year will unfold — they are areas and opportunities in which we are actively looking to invest. If you are building a company or solution in one of these spaces, we want to hear from you! Reach out to one of our investors to set up an introductory conversation.
See you in 2025!