Sidney Scott has made the decision to step away from the venture capital race and is humorously putting his vests up for auction, starting at $500,000.
As a solo general partner at Driving Forces, Scott announced on LinkedIn this week the closure of his $5 million fintech and deep tech VC fund that he launched in 2020, describing the past four years as “a wild ride.” Supported by limited partners such as Julian Shapiro, Milad Alucozai, Aravid Bharadwaj, Iris Sun, and Josh Schacter, Scott had about two dozen investments in companies like SpaceX, OpenSea, Workstream, and Cart.com. His portfolio achieved a noteworthy 30% net internal rate of return, exceeding the typical deep tech IRR of 26% according to Boston Consulting Group.
In addition to his fund, Scott was instrumental in establishing the first AI and deep tech investor network with Handwave, collaborating with major investors from NVIDIA M12, Microsoft’s Venture Fund, Intel Capital, and First Round Capital.
Despite the success of his fund, Scott made the difficult decision to shut it down due to changes in the market since his initial thesis five years ago. He noted a shift in investor interest from software-as-a-service and fintech to hard tech and deep tech, prompting large investments in the field. With the rise of deep tech funding, Scott observed an influx of capital and investors, leading to increased competition for deals, particularly for smaller funds like his.
As new players enter the deep tech space, Scott cautioned against a rapid rush into investments, predicting potential challenges and market distortions due to inflated valuations. He acknowledged the success of deep tech in areas like robotics and quantum computing but warned about the risks of unrealistic expectations and funding struggles that could arise as a result of heightened competition.
Looking ahead, Scott sees the deep tech market evolving rapidly, with more capital attracting more investors and potentially creating a cycle of boom and bust. With a limited pool of experts and builders in hard tech, valuation inflation could accelerate, leading to funding constraints and slowdowns in development, ultimately impacting investor confidence and startup viability.
