Sidney Scott (Tech) has decided to exit the venture capital rat race and is now jokingly auctioning off his vests—starting at $500,000.
Closure Announcement
Public Announcement
The Driving Forces solo general partner announced on LinkedIn this week that he was shutting down his $5 million fintech and deep tech VC fund, which he started in 2020. He called the past four years “a wild ride.”
Reason for Closure
A healthy performance of his first small fund wasn’t enough. He told TOPCLAPS that with increasing competition for a few hard tech and deep tech deals, he realized it would be a challenge for smaller funds like his.
Market Conditions
“This wasn’t easy, but it’s the right choice for the current market,” he said.
Acknowledgments and Thank you
Support Network
Scott also thanked those who stood by him, such as entrepreneur Julian Shapiro, neuroscientist Milad Alucozai, Intel Capital’s Aravind Bharadwaj, 500 Global’s Iris Sun, and UpdateAI CEO Josh Schachter.
Achievements and Contributions
AI and Deep Tech Investor Network
During that time, he built the first AI and deep tech investor network with Handwave, collaborating with investors at companies such as Nvidia, M12, Microsoft’s Venture Fund, Intel Capital, and First Round Capital.
Investments
That ride included about two dozen investments into companies like SpaceX, Rain AI, xAI, and Atomic Semi. Scott told TOPCLAPS that the total portfolio yielded over 30% net internal rate of return, a metric measuring the annual rate of growth an investment or fund will generate. Thirty percent for a seed fund like this is considered solid IRR performance and outpaces the total average deep tech IRR, which is about 26%, according to Boston Consulting Group.
Tech Evolution of the Market
Past Investment Tech Trends
When Scott wrote the fund’s thesis five years ago, it was a different world. He said that back then, most investors avoided hard and deep in favor of software-as-a-service and fintech.
Reasons for Previous Avoidance
VCs can have a follow-the-crowd mentality, and SaaS was considered more of a moneymaking bet then. But VCs also avoided deep tech because investors believed — perhaps rightly so — that it required extensive capital, longer development cycles, and specialized expertise. Deep often involves new hardware but always builds tech products around scientific advances.
Shift in Investment Focus
Current Trends Tech
“Shockingly enough, those same reasons are the exact reasons why many companies are now directly investing in deep tech, which is very ironic, but it comes with the territory,” Scott said. “Everyone was investing in scale-fast, launch-fast and get-into-the-market. They would invest in these brilliant people who would eventually turn the science project into an operating business one day.”
Changing Investor Sentiment
He is now seeing fintech investors, who previously would turn him down on deals a year ago, raising hundreds of millions of dollars in funds specifically targeting deep tech.
Prominent Deep Tech VCs
Major Players
While he didn’t name names, a few VCs that are big into deep tech include Alumni Ventures, which closed its fourth deep tech dedicated fund in 2023; Lux Capital, which raised a $1.15 billion deep tech fund in 2023; Playground Global, which raised over $400 million for deep tech in 2023; and Two Sigma Ventures, which raised $400 million for deep tech in 2022 (and SEC records show in 2024, it raised another $500 million fund).
Growth in Deep Investment
Deep tech now accounts for about 20% of all venture capital funding, up from about 10% a decade ago. A recent Boston Consulting Group report states it has “become a mainstream destination for corporate, venture capital, sovereign wealth, and private equity funds” over the past five years.
Tech Future Outlook
Newcomers and Challenges
Scott also believes that many of these newcomers to the area are setting themselves up for “a massive eye-opener within three years,” and the rush into deep tech investing was too fast.
VC Inflation Cycle
A typical VC inflation cycle begins when money pours into a limited number of deals. VCs bid up the prices they are willing to pay for stakes, sending higher valuations and making the area more expensive for everyone—prohibitively for a solo fund like his.
Market Realities
Big Exits
In a time when big exits for startups have been limited — thanks to the closed IPO market and the death of interest in SPACs — deep tech has still had its successes in areas like robotics or quantum computing.
Tech Future Predictions
He said he isn’t bearish on venture capital, in general, or complex companies but does expect a “bullwhip effect” in deep tech investing where early-stage investors and VCs will rush to repeat prior breakthroughs or high-profile successes; Scott said.
Investor Sentiment and Market Cycles
Surge in Startups
As with venture capital, he predicts that more capital will attract more investors, including those with less expertise, leading to a surge in deep startups. However, he said that could create unrealistic expectations and significant pressure on startups to perform.
Potential for Negative Shift
And since cycles happen often in venture capital, he believes investor sentiment could quickly turn negative should market conditions shift.
Valuation Inflation
“Given the ultra-small pool of experts and builders, along with the capital-intensive nature of hard, the phase of valuation inflation can be sped up, driving up startup valuations rapidly,” Scott said. “This impacts the entire ecosystem, causing funding struggles, slower development, and potential shutdowns, further dampening investor confidence and creating a negative feedback loop.
