November 27, 2022

Volume XII, Number 331

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Venture Capital Firms Sitting on Billions in Dry Powder: Will This Lead to a Wave of Investment?

A buzz is starting to build that we could see a return to blockbuster venture capital investment in 2023. Although firms have been wary of investment over the past few months, that is predicted to change. If venture capital firms begin to deploy the massive amount of dry powder they are currently sitting on, we could see investment next year along the lines of what we experienced in 2021 or even greater.

Jon Sakoda, founder of early-stage venture firm Decibel Partners, analyzed nearly a decade of venture fundraising and investment activity, and recently told The Information that venture capital firms are currently sitting on $290 billion in dry powder, with $162 billion of that designated for new investments. 

So, what is dry powder? It is money raised by venture capital firms, but not yet deployed. And venture capital firms currently have a record pile of it.

Venture firms have held back on investment in 2022 with the economy stalled, inflation spiking, and the market on a roller coaster ride.  But there will be pressure on these firms to deploy this substantial amount of money that has been sitting on hold.

Sakoda commented to The Information, “At some point the floodgates will open.”  And this is true.  With startup valuations lower than last year, it could be an ideal time for investors to ramp up investment in startups that have demonstrated success despite extremely challenging conditions over the past year. 

This could present a significant opportunity not only for investors, but also for those founders who are able to position themselves properly and take advantage of this incredible opportunity. Investors will be looking for the next big thing, those companies that are forward thinking, incredibly innovative, and are primed to take off once the economy corrects.

It has happened before. Tech startups that were funded during previous downturns when valuations were lower have gone on to great success, and their investors who saw the potential and the opportunity, have achieved great returns. 

Startups should cautiously begin preparing for funding to begin flowing again and looking at how to best position themselves to investors. Startups will likely still be facing decreased valuations, but if all goes as predicted, funding should become easier to secure in the coming months.

This could be a very exciting time for both investors and founders, and it is possible we could see the next great tech giant born during this time. 

© 2022 Foley & Lardner LLPNational Law Review, Volume XII, Number 278
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About this Author

 Louis Lehot Private Equity Attorney Foley and Lardner Law Firm
Partner

Louis Lehot is a partner and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley, San Francisco and Los Angeles offices, where he is a member of the Private Equity & Venture Capital, M&A and Transactions Practices as well as the Technology, Health Care, Life Sciences and Energy Industry Teams. Louis focuses his practice on advising entrepreneurs and their management teams, investors and financial advisors at all stages of growth, from garage to global. Louis especially enjoys being able to help his clients achieve hyper-growth, go public and to...

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