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The Story: Venture capitalists are sitting on a pile of cash $311 billion dollars high. They accumulated most of it during the flourishing venture markets between 2020 and 2022, when investors and limited partners were happily providing billions in capital to VCs.

The pandemic-era boom saw record highs of investment into firms across the venture landscape. Nearly $450 billion was raised in those two years. Then in early 2022, markets began to contract and have stayed on a steep decline since.

The downturn saw firms deploy significantly less money into Silicon Valley startups, opting to shy away from the riskier bets as the pursestrings have tightened. The once free-flowing venture cash spigot has been effectively shut off in recent times.

“Since the middle of 2022, VCs have gotten a lot more cautious,” says Amy Wu, partner at Menlo Ventures. According to Wu, during the two years of bull markets before 2022, caution was “thrown to the wind.” But, “The reality is that every year, there’s only a handful of generational companies being born, and so when you have, all of a sudden, 5-to-10x more capital into this category, you’ll have super high valuations and a lower performing category.”

But the hundreds of billions of dollars stockpiled by VCs two years ago is still just waiting to be deployed. Firms are sitting on over $300 billion of dry powder, and LPs are beginning to grow impatient as their money sits idle.

A Silicon Valley investor told the Financial Times, “LPs don’t usually like to put pressure on VCs to spend money, but if you’re entering your third year of not doing anything, they’re starting to ask what are my fees for.”

So will 2024 be the year that venture capital opts to return to its risk-taking ways and deploys billions into the startup market?

Expert Take: Amy Wu thinks it’s possible.

In 2024, Wu expects to see a “bigger diversity of AI companies being funded.” She says, “It’s been a banger of a year for AI funding. It’s where most of the funding is going right now in this industry since last year. I think that will continue.”

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