Two years ago, US venture capital giant Sequoia issued a stark warning to tech start-ups. Recovery from the market downturn would be slow. The kind of assistance that supported the economy in the pandemic would not be repeated and cheap funding was no longer an option. The bleak prognosis was correct. The US start-up sector is still wading through the most significant drawback in funding since the dotcom crash.
The pile of unallocated capital, aka dry powder, is vast. Data from Silicon Valley Bank puts the total at $277bn, while the National Venture Capital Association says it is closer to $312bn. Either way, it is a record high and more than double the sum available in the dotcom bubble — adjusted for inflation. Caution about allocating funds means the ratio of dry powder to investment is lower.
The low interest rates that drove nearly $27bn into crypto start-ups in 2022 and turned robot pizza start-up Zume into a $2bn company are gone. In the first quarter of 2024, US VC funding deals fell to the lowest point since 2017, according to PitchBook. With a diminishing prospect of rate cuts this year, this is likely to continue.