PitchBook News - Raining on the dry powder parade

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The Weekend Pitch

October 9, 2022

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In recent weeks, a debate bubbled up among the venture capital and startup crowd on Twitter about a normally benign financial metric. Dry powder, an estimate of the capital available for VC firms to invest, briefly became the talk of the town.

The dry powder debate is fundamentally about whether we should be optimistic or pessimistic about our outlook for startups. This anxiety over available capital is understandable, since startups rely on new investment.

In an economic downturn, mountains of cash mean that fewer startups will fail than would otherwise. But if the accuracy or importance of dry powder is overstated, market actors may be blind to the specter of a tighter funding environment.

Welcome back to the Weekend Pitch. I'm James Thorne and you can reach me at james.thorne@pitchbook.com or on Twitter @jamescthorne.

On one side of the argument are dry powder optimists: those who believe the estimated $290.1 billion available to VC firms, according to PitchBook data, is enough to outlast any downturn. Moreover, startups attract gobs of funding from investors other than traditional VCs, money that isn't captured in dry powder estimates. In a LinkedIn post, Decibel Partners founder Jon Sakoda argued there's enough dry powder to keep the industry humming for three years.

The naysayers respond that the impact of dry powder levels on future behavior is overstated and that the figure is more of a lagging indicator than a bellwether of the market outlook. Speaking on the "All In" podcast, Craft Ventures co-founder David Sacks warned against "overly optimistic, overly rosy" projections based on the state of dry powder.

So will dry powder save startups from a capital drought—if it ever comes?

Reasonable people can disagree, but high levels of dry powder are no guarantee of venture's unstoppable growth. Moreover, data collection delays and uncertainty over investor behavior make predicting the amount of dry powder both an art and a science. The indicator's importance may also be exaggerated, since VCs have broad leeway over how and how quickly to invest.

Quote/Unquote

"Defendants' proposal is an invitation to further mischief and delay."

—Lawyers for Twitter, responding to Elon Musk's request for a delay in the trial meant to resolve a dispute over the billionaire's offer to buy the company for about $44 billion. The judge in the case later delayed the trial and gave the parties until Oct. 28 to agree on final deal terms.

Deal flow

The COVID-19 pandemic pushed many local governments to transition their public services to the internet. As a result, startups have seen a rise in opportunities to create online tools that help local governments provide services to local businesses and residents, schedule virtual meetings, work efficiently and protect against ransomware risks.

Explore some of the largest govtech deals in recent years.

Did you know ...

(Wara1982/Shutterstock)

… That venture investments among African fintech startups could be on pace for a record year despite a global slowdown within the sector?

African fintech startups have taken in $1.3 billion in investments through over 150 deals this year. Last year, the sector saw $1.6 billion across 190 deals, according to PitchBook data.

Datapoints

In our latest Sustainable Investment Survey, PitchBook analysts polled investors on ESG risk factors, sustainable investing and impact investing. In this year's survey, analysts provided investors with a 30-question survey and recorded at least one answer from 1,164 individuals.

See the full results of the survey here.

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In a crowded streaming marketplace, Amazon, HBO Max and others are exploring discounted packages and partnerships with rivals. [The Wall Street Journal]

Helium, a much-hyped crypto project backed by Andreessen Horowitz, will be partially delisted from major cryptocurrency exchange Binance. [Forbes]

How a popular women's coworking startup failed despite billionaire backers, a $365 million valuation and a 35,000-person waiting list. [Fortune]

Reducing airplane contrails could provide near-term climate relief as the industry works to decarbonize over the long haul. [Protocol]

The conviction of former Uber security chief Joe Sullivan for a data breach is a rare criminal consequence for an executive's handling of a hack. [Wired]

This edition of The Weekend Pitch was written by James Thorne and Ryan Prete. It was edited by Chris Noble and Clarinda Simpson.

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PitchBook News - Raining on the dry powder parade

Quote/Unquote

Deal flow

Did you know ...

Datapoints

Recommended reads

Key phrases

Older messages

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Are down rounds really company killers?

US VC trudges through Q3

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Foreign exchange markets' wild ride

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