Sezzle - FInTech Tracker - September 2023

Tech Investors Stockpile Record $311 Billion in ‘Dry Powder’

Mubadala Makes Second Major Investment In Reliance Industries

Venture capitalists (VCs) reportedly have $311 billion in unspent cash as tech funding cools.

VC groups in the U.S. raised a record $435 billion from their investors between 2020 and 2022 and have deployed just half of that amount, the Financial Times (FT) reported Tuesday (Jan. 30), citing data from Pitchbook.

That means there is a lot of accumulated “dry powder” — industry slang for unspent cash — as VC companies grow more cautious about investing as startup valuations fall. Instead, the report said, these firms are putting their efforts into more established companies or bolstering their existing portfolios.

“There is dry powder for sure, but it’s not like the world is going to be flooded with VC money again,” said Ibrahim Ajami, head of ventures at Mubadala Capital, part of the $276 billion Abu Dhabi sovereign wealth fund Mubadala Investment Company.

And with that flood of money drying up, the FT says, startup collapses have doubled, with companies like Hopin and Convoy going under last year.

“In some ways, dry powder is a mirage. It’s a theoretical number,” Nigel Dawn, global head of private capital advisory at investment bank Evercore, told the news outlet. 

“Portfolio companies in venture funds are feeling the cash squeeze more than ever: the idea that you can simply grow and grow with no profitability in sight and the cash spigot will always be on is gone.”

As noted here earlier this month, VCs raised $67 billion 2023, the lowest total since 2017. Pitchbook analysts have predicted VC fundraising could increase this year, though it will likely not reach the highs it did during the pandemic.

“Everything is trying to find a balance,” Kyle Stanford, venture capital analyst at PitchBook, told Bloomberg News recently.

PYMNTS examined the changing funding environment earlier this month in an interview with Mahdi Raza, co-founder and co-managing partner of Exponent Founders Capital.

He told PYMNTS CEO Karen Webster that the profile of founders has changed, with more experienced executives now running startups, in contrast to the pandemic era where companies could raise $100 million with just the ghost of a business model and no product or customers.

“The founders now are customer-centric, product-centric and are saying ‘this is going to be my life’s work and journey for the next 20 years,” Raza said.