Startup's Harsh Winter... US VC Undisbursed Investment Funds Surpass $300 Billion for the First Time

Last Year US VC Dry Powder $311 Billion
First Time Surpassing $300 Billion
High Interest Rates Sustain Low Preference for High-Risk Investments

Last year, the amount of unexecuted funds raised by U.S. venture capital (VC) firms for startup investments reached an all-time high. Analysts suggest that as startups faced poor business conditions due to high interest rates and an economic downturn, VCs opted to hold cash to protect returns. On top of that, venture companies likely struggled with cash shortages as they were unable to secure investments amid management difficulties.

According to market research firm PitchBook on the 31st, the size of the U.S. VC industry's ‘dry powder’ stood at $311 billion last year. Dry powder refers to the unexecuted capital raised from investors by VCs and others. This is the first time that the U.S. VC industry's dry powder has surpassed $300 billion. From 2020 to 2022, during the COVID-19 pandemic, the U.S. VC industry raised a record $435 billion in startup investments due to abundant funding enabled by low interest rates. However, only about half of this was actually invested in startups, with the remainder becoming dry powder.

The number of startup acquisitions supported by U.S. VCs fell from a peak of 1,311 deals in 2021 to 698 deals last year. Additionally, startup valuations dropped sharply, with total valuations plunging from $103.1 billion to $26.7 billion over the same period.

This is a result of sustained high interest rates reducing the preference for high-risk investments. It is interpreted that investors decided it was better to hold cash than to fund startups.

In particular, this led to a decrease in the emergence of unicorns (startups valued at over $1 billion). According to PitchBook, 225 unicorns emerged last year, the lowest number since 2019. Among these, 44% were companies related to the artificial intelligence (AI) boom that received investments from major big tech firms, highlighting how severe the startup winter has been. Some startups that once rose to unicorn status, such as the trucking startup Convoy and the online event platform startup Hopin, were sold last year at bargain prices.

Market observers expect that with central banks around the world projected to cut interest rates this year, startup investments may see a revival.

On the other hand, voices are raised that it will be difficult to regain the vibrancy seen during the ultra-low interest rate era brought on by COVID-19. This is because equity investments in startups no longer bring the same level of profitability to LPs (limited partners), who are the main investors. In fact, the amount redistributed by U.S. VCs to LPs last year was only $21 billion, which is about 15% of the total $141 billion paid out in 2021. This is why there is an analysis that funds will not flow into VCs as much as before.

This content was produced with the assistance of AI translation services.