There is a crazy amount of dry powder in the U.S. financial system. A lot of the money printed during the pandemic is just sitting there, growing at ever-higher risk-free interest rates.
I highly doubt your described situation exists.
There's a lot of money specifically allocated to venture funds that needs to be deployed.
Now let's consider VCs. Like a restaurant, VCs spend money in a way that doesn't align with the basket of goods / weighting used for CPI. VCs spend most of their money on equity in tech companies. Equity in tech companies has actually gotten cheaper. Here is a concrete example: Stripe was valued at $95 billion in 2021. In order to buy 1% of Stripe, you'd need to spend $950 million. Now, Stripe is valued at $60B. You can buy 1% of Stripe for only $600 million. That's deflationary.
I agree tech valuations have imploded. This is a function of equity being predicated on expected returns in the future. Many reasons for tech valuations imploding - part of them -> cost of salaries to match CPI and cost trimming from other companies as inflation hits their bottom line and product sales aren't as robust.
In your example the valuations are on the private market and do not replicate what the public market would pay for them because the expectations on returns are out of whack with reality. VCs bought into their own hype and started thinking that they would get absolutely bonkers returns on companies that have no ability to get the returns required to drive those valuations.
This reality is because all of a sudden there is interest rates in the market and other returns elsewhere to be gained and that interest free money is gone.
VCs might have better buying power of what portion of a company they can buy however the expected returns are no longer in the same ballpark as they were. As a function of inflation their exit from investments looks far worse than it did a short time ago. However what VCs are buying is future returns not necessarily company size. So if you can buy more of a company on lower returns it isn't far different from less of a company on higher returns.
> So if you can buy more of a company on lower returns it isn't far different from less of a company on higher returns.
There is a big difference when you're in a highly deflationary environment. Inflation and deflation can cause price spirals. In periods of high inflation, people rush to spend money because it's losing value daily, which causes prices to go even higher. In periods of deflation, the opposite happens: people hold off on spending causing further price drops. VCs are holding cash and not investing much of it because of deflationary expectations. This is causing valuations to drop even lower.
Depending on when valuations start to slide, and whether or not they ever start to accelerate like they did at the latter half of the last decade, they could get called in to a lot of hard conversations about "if you're not using my money, give it back."
If you're a VC you want to be raising new funds from your investors for the next wave of startups, you don't want to be unable to find promising investments for your current funds. You're not gonna be able to raise again in the future in that case.
AKA a "zombie."