"Dry powder" is a term used in the venture capital industry to refer to the unused funds that a venture capital firm has available to invest in new startups or follow-on investments in existing portfolio companies.
The term "dry powder" is used because these unused funds are ready to be deployed at a moment's notice, similar to a firefighter having a supply of dry powder ready to use to put out a fire.
Having a significant amount of dry powder is advantageous for a venture capital firm as it allows them to act quickly when opportunities arise to make new investments or increase their ownership in successful portfolio companies.
Additionally, having dry powder provides a VC firm with more bargaining power in negotiations with startups, as they are able to provide larger investment amounts and follow-on funding rounds.
However, having too much dry powder can also be a disadvantage for a venture capital firm, as it means that they may not be deploying capital quickly enough and missing out on investment opportunities. Additionally, having large amounts of unused funds can also put pressure on a venture capital firm to make investments even if they are not the best opportunities, in order to put their capital to work.
Overall, managing dry powder is a critical aspect of venture capital investing and requires careful consideration of both the short-term and long-term goals of the firm.