There’s a common refrain in entrepreneurial circles that some of the best companies are built in the toughest of times — now those tougher times appear to be coming.
Keep your powder dry
The last decade has seen record investments from venture capital investors to startups, but things are starting to turn. The latest data from PitchBook reveals that venture capital (VC) investment in 3Q 2022 was down ~$90bn, more than 50% on the same quarter last year.
Though investors wrote smaller checks in the third-quarter, VC funds are actually still awash with cash. Data from Preqin, reported on by the WSJ, shows that VCs are sitting on an astounding $500bn+ of raised cash that is not yet invested, known as dry powder in the VC world.
Choosers can’t be beggars
VCs are understandably cautious about future investments. High-profile unicorns like Robinhood, Rivian and Doordash have been crushed in public markets, and VCs are becoming increasingly selective on the companies they back, as sentiment has pivoted from "growth-at-all-costs" to "stuff-that-makes-money".
The flip side of the coin is that for founders building genuinely innovative companies, with a sustainable business model — or at least a credible path to one — there's still some $500bn of capital sitting on the sidelines, waiting to be put to work.
