The venture capital arena has been raising money at a furious pace, but VC firms have also been sitting on the cash for dry powder.
As Reuters reported last week, venture firms invested $12.1 billion in the first quarter, which slowed from $17.3 billion in the second quarter of 2015, the high water mark for investments. By way of contrast, the industry raised $13 billion in the most recent quarter, which the newswire noted has been the strongest pace seen in roughly 16 years. The total dry powder, according to Reuters, stands at a staggering $382 billion across both venture capital and private equity firms focused on technology investments.
And yet, that cash is not going anywhere. Reuters said that the VC backers are “bracing for a downturn and boosting reserves” to lend firepower to the investments they’ve already made — ostensibly, to keep them from going bust.
The rise of the unicorns has meant that many highly valued startups are now left with no "exit strategy,” said Reuters. The IPO doors may have been shut, with no VC-backed tech startup going to the public well. The high valuations also mean that many would-be acquirers are shying away from pulling the trigger (even as many firms have been reporting strong paper gains).
In a recent example, Scale Venture Partners has lightened up on its investment activity and has pushed its investment reserves by 10 percent in order to support its existing holdings.
In another example, Accel Partners has slowed its new investments and has boosted its funding for portfolio holdings already in the roster. The $2 billion that it raised two months ago will not likely be used to fund investments until later in the year.