Dry powder is committed capital that a fund has raised from its investors but not yet deployed into assets. It represents the fund's available firepower for new acquisitions, add-on deals, or follow-on investments in existing portfolio companies.
Dry powder is a measure of capacity and pressure at once. Large uninvested reserves give a fund flexibility to act on opportunities, but capital committed by investors also carries an expectation that it be put to work within the investment period. The level of dry powder across the industry is often read as a signal of competition for deals and upward pressure on entry valuations.