Venture capital has lots of dry powder in 2023

Illustrated by Shoshana Gordon/Axios

Last year was a record year for venture capital fundingbut some investors have warned that big “dry powder” numbers are an illusion and cannot make much startup investment in a year already off to a rocky start.

Important reasons: Whether VCs are willing to back companies in 2023 could mean the difference between life and death for certain money-hungry startups.

Big picture: In 2022, VCs raised a total of $162.6 billion across 769 funds, according to the latest data from PitchBook. This follows his record $154.1 billion in venture funding in 2021.

  • As of September 30, 2022, there was about $298.5 billion in dry powder, according to PitchBook.

What they say: “Everybody keeps talking about how much VCs invest in ‘dry powder’. It’s all BS,” Octane AI co-founder Ben Parr recently said on Twitter.

Yes, but: There are nuances.

For one, Not all Limited Partners (LPs) are created equal. While some high net worth individuals may be cash-strapped right now, things are different for large institutions.

  • They model their portfolios and assets for many possible scenarios and are typically ready to secure the necessary liquidity to meet their commitments.
  • But cash shortages show up in one area — whether they make commitments for new funds. While some LPs are doubling down on ventures and increasing allocations to asset classes, many are feeling overwhelmed after VCs raised new capital faster than before during the pandemic.

moreover: VCs conduct They need to deploy the raised capital — that’s their job.

  • But it won’t be at the speed and volume we saw during the busy time of 2021, which may make the market feel like it’s not moving. Also, as many have pointed out, recessions usually drive out tourists, leaving all investors feeling like they’ve cleared their checkbooks.
  • In fact, investors poured $238.3 billion into nearly 16,000 deals in the US, even among some startups that pulled back from VCs or delayed funding last year. This is the most venture investment in at least a decade except 2021.

Vibe check: “I’ve never heard an LP get as upset as we did during the financial crisis,” Chris Douvos of Ahoy Capital, which invests in early-stage venture funds, told Axios.

  • “We are not calling on people to reduce the size of the fund as it was in 2008,” he adds. “I think what people want is a return to a normal pace from the hyperactivity of 2020 and 2021.”
  • He also points out that for VCs, “deploying capital is the gate to the next round of funding.”

To the point: 2021 remains an outlier in almost every respect.

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