Dry Powder?

Dry Powder?

The past two weeks have focused on the assessment of Venture Capital and where it is. The headlines have told the story. Last week's Bonfire of The Unicorns? The week before Never Waste A Good [Venture] Crisis and before that Data-First Venture is Coming, a more optimistic view of the future.

This week we go with Dry Powder. Bill Gurley catalyzed the title with his X post about the belief that Venture Capitalists will deploy the "dry powder" they have under management. Gurley explains why the belief that uninvested fund commitments have to be deployed is incorrect.

The key phrase:

The money isn't actually at the VC firm, they are still sitting in the coffers at the LPs. No VC firm I have ever been exposed to feels "pressure" to "get dollars to work."

and

There are also new market realities. Public comps have changed materially, & founder expectations have not moved as fast. Whole industries trade at a fraction of former multiples. So in many cases there simply isn't a market clearing price. This takes time.

Gurley's comments were in response to many commentators referring to the $271 billion in un-invested venture fund commitments.

The lack of a market clearing price means that there is no price at which some companies could raise capital. This is not about the need for down rounds but about the fact that even a down round could not get priced.

This is why I think the class of 2023 Seed rounds is the new norm. These rounds did not go through the 2020-2022 price regime. They can go on to do A and B rounds and will do so during the next two years.

Some companies will, of course, be able to do down rounds, and many will be led by existing investors or insider rounds. This week we cover Gené Teare's (Happy Birthday) article on the collapse of global venture funding in July and Jason Lemkin's X thread on why entrepreneurs should lead the re-capitalization of their companies and lower the valuations before seeking new capital.

In my reading, I found little in the way of optimism.

That said, this is a time of enormous innovation and value creation. It is inconceivable that substantial investments and outcomes will not emanate from investments made in 2023. The idea that this is a great time to invest is not hubris. But the ability to work closely with the best seed investors and partner with them will be key to finding the companies that will make up this group.

The game has changed to a game where late-stage growth investing is no longer driving momentum. Instead, seed investing, including pre-seed, is the name of the game. This cohort's future Series A and B rounds are where to look for growth and value. Great companies will be built and funded.

Substack is this week's startup of the week. It is not the first time. The founding team made some announcements of intent this week:

"Readers might be the internet's most important constituency, and yet they have been treated like paupers. The companies that dominate today's cultural sphere seem to consider the reader's mind only insofar as it can be tricked into ceding its bounty of attention - the black gold of the "Information Revolution." What a disappointing revolution it has been. We thought we were going to live in the Library of Alexandria; instead we're wading through its sewers hoping to find wisdom on wet pages pasted to the walls. "

These intentions mirror a lot of what I have spoken about here and on the . Writing requires reader engagement. Substack is right to focus on reader features, including the reader economy (what happens when a reader shares your writing with another reader). I look forward to seeing more.

Essays of the Week