Deep tech VC Sidney Scott explains why he’s closing his firm as this area booms | TechCrunch

Sidney Scott decided to take himself out of the venture capital rat race and is now jokingly auctioning off his vests — starting at $500,000. 

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 that he started in 2020, calling the past four years “a wild ride.” Scott was backed by limited partners, including entrepreneur Julian Shapiro, neuroscientist Milad Alucozai, Intel Capital’s Aravid Bharadwaj, 500 Global’s Iris Sun and UpdateAI CEO Josh Schacter. 

During that time, he was also involved in building the first AI and deep tech investor network with Handwave, collaborating with investors at companies including NVIDIA M12, Microsoft’s Venture Fund, Intel Capital and First Round Capital.

That ride included about two dozen investments into companies like SpaceX, OpenSea, Workstream and Cart.com. 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, Scott told TechCrunch. Thirty percent for a seed fund like this is considered solid IRR performance and it outpaces total average deep tech IRR, which is about 26%, according to Boston Consulting Group. 

But a healthy performance of his first, small fund wasn’t enough.

“This wasn’t easy, but it’s the right choice for the current market,” he wrote. Five years ago, when Scott had the thesis for the fund, it was a different world. Back then most investors avoided hard tech and deep tech in favor of software-as-a-service and fintech, he said. 

That was for various reasons. VCs can have a follow-the-crowd mentality and SaaS was considered a more of a money-making sure bet at the time. But VCs also avoided deep tech because investors believed — perhaps rightly so — that it required extensive capital, longer development cycles and specialized expertise. Deep tech often involves new hardware, but always involves building tech products around scientific advances.  

“Shockingly enough, those same reasons are the exact reasons why a lot of companies are now directly investing into 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 were going to invest in these extremely smart people who would eventually turn the science project into an operating business one day.” 

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. 

While he didn’t name names, a few VCs who 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 raised over $400 million for deep tech in 2023. Two Sigma Ventures, which raised $400 million for deep tech in 2022 (and SEC records show in 2024, it raised another $500 million fund). 

Deep tech now accounts for about 20% of all venture capital funding these days, up from about 10% a decade ago. And over the past five years specifically, it has “become a mainstream destination for corporate, venture capital, sovereign wealth, and private equity funds,” according to a recent Boston Consulting Group report.

With increasing competition for what is, essentially, still a small number of hard tech and deep tech deals, he realized it would be a challenge for smaller funds like his. 

That said, Scott also believes that many of these newcomers to the area are setting themselves for  “a massive eye-opener within three years” and the rush into deep tech investing was too fast.