Sidney Scott has decided to step out of the venture capital race, and is now auctioning off his jackets — starting at $500,000.
the Driving forces Sole General Partner Advertised on LinkedIn This week he announced he was closing a $5 million fintech and deep tech venture capital fund he started in 2020, calling the past four years a “wild ride.”
The healthy performance of his first small fund wasn’t enough. He told TechCrunch that as competition increased for what were essentially a small number of deals in hard tech and deep tech, he realized it would be a challenge for smaller funds like his.
“It wasn’t easy, but it’s the right choice for the current market,” he added.
Scott also thanked people like entrepreneur Julian Shapiro, neuroscientist Milad Alokozay, Aravind Bharadwaj of Intel Capital, Iris Sun of 500 Global, and Josh Schachter, CEO of UpdateAI, who stood by him.
During that time, he also participated in building the first AI and deep tech investor network with hand waveIn partnership with investors including Nvidia, M12, Microsoft’s Venture Fund, Intel Capital, and First Round Capital.
That journey included about two dozen investments in companies like SpaceX, Rain AI, xAI, and Atomic Semi. The overall portfolio yielded a net internal rate of return of more than 30%, a metric that measures the annual growth rate an investment or fund will generate, Scott told TechCrunch. Thirty percent for a seed fund like this is The internal rate of return is solid. The overall performance exceeds the average internal rate of return for deep tech, which is about 26%, according to Boston Consulting Group.
Five years ago, when Scott pitched his thesis for the fund, the world was different. Back then, most investors were shunning hard, deep tech in favor of software-as-a-service and fintech, he says.
This was for various reasons. VCs had a crowd-following mentality, and SaaS was seen at the time as a sure bet for making money. But VCs also shunned deep tech because investors believed—perhaps rightly—that it required extensive capital, longer development cycles, and specialized expertise. Deep tech often involved new hardware, but it always involved building technical products around scientific advances.
“It’s amazing that the exact same reasons are why so many companies are now investing directly in deep tech, which is ironic, but it comes with the flow,” Scott said. “Everyone was investing in speed of scale, launch, and time to market. They were going to invest in these very smart people who would eventually turn the science project into a viable business one day.”
Now he sees fintech investors, who were spurning his deals last year, raising hundreds of millions of dollars in funds specifically targeting deep tech.
While he didn’t name names, some venture capital firms that are heavily involved in deep tech include Alumni Ventures, which closed Deep Technology 4 Dedicated Fund in 2023; Lux Capital, which Raised $1.15 billion Deep Tech Fund in 2023; Playground Global, which raised over $400 million in deep tech in 2023; and Two Sigma Ventures, which raised $400 million in deep tech in 2022 (and Securities and Exchange Commission records show In 2024, it raised another $500 million.
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 in particular, it has become “a major destination for corporate, venture capital, sovereign wealth and private equity funds,” according to a recent study. Boston Consulting Group Report.
Scott also believes that many of these newcomers to the region are setting themselves up for a “huge surprise in three years” and that the rush to invest in deep tech has been too rapid.
When money flows into a limited number of deals, a typical venture capital inflation cycle begins, with venture capitalists raising the prices they are willing to pay for their stakes, driving up valuations and making the area more expensive for everyone — which is prohibitively expensive for an individual fund like his.
At a time when big startup exits have been limited—thanks to a closed IPO market and the death of interest in special purpose acquisition companies—deep tech is still making inroads into Areas such as robotics Or quantum computing.
He said he’s not bearish on venture capital, in general, or hard tech companies, but he expects there to be a “bull whip effect” in deep tech investing as early-stage investors and venture capital firms rush to replicate past breakthroughs or high-profile successes, Scott said.
As with venture capital, he expects more capital to attract more investors, including those with less experience, and he said this would then lead to an increase in deep tech startups. However, he said this could create unrealistic expectations and too much pressure on startups to perform. And since cycles often occur in venture capital, he believes investor sentiment could quickly turn negative if market conditions change.
“Given the small size of the pool of experts and developers, coupled with the capital-intensive nature of hard technology, the valuation inflation phase can be accelerated, causing startup valuations to skyrocket,” Scott said. “This impacts the entire ecosystem, causing funding difficulties, slower development, and potential closures, which can further erode investor confidence and create a negative feedback loop.”