Micah Rosenbloom, a General Partner at Founder Collective, a seed stage venture capital fund, does not necessarily agree with those who believe that the $290 million in “dry powder” that venture firms are holding will re-energize the start-up market in 2023.
“Investors and entrepreneurs need to prepare for what could be a massive level of attrition that could occur if the funds are deployed more slowly,” he writes in this Harvard Business Review article. “Here are a few reasons why I’m encouraging founders to focus on their existing runway and not to pin their hope on dry powder.”
Here are his key reasons:
- Venture firms will focus on their key holdings, not necessarily making new investments;
- Investors have to sort out a cashflow logjam;
- The $290 million could evaporate if Limited Partners (LPs) decide to ask out of their commitments; and
- LPs can exercise what he describes as “soft power.”