Sidney Scott has decided to take himself out of the venture capital rat race and is now jokingly auctioning off his vests – starting at $500,000.
The Motive forces solo general partner announced on LinkedIn this week closing its $5 million fintech and deep-tech VC fund that launched 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 this time, he was also involved in building the first AI and deep tech investor network Hand wavein partnership with investors in companies such as NVIDIA M12, Microsoft Venture Fund, Intel Capital and First Round Capital.
That path included about two dozen investments in companies like SpaceX, OpenSea, Workstream and Cart.com. The overall portfolio delivered more than a 30% net internal rate of return, 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 considered a solid IRR performance and beats the overall average deep tech IRR, which is around 26%, according to the Boston Consulting Group.
But a healthy return on his first, small capital was not enough.
“This wasn’t easy, but it’s the right choice for the current market,” he wrote. Five years ago, when Scott had his fund thesis, it was a different world. Back then most investors were shunning hard tech and deep tech in favor of software-as-a-service and fintech, he said.
This was done for several reasons. VCs can have a follow-the-crowd mentality, and SaaS was seen as a surer money-making bet at the time. But VCs also avoided deep tech because investors believed—perhaps rightly—that it required extensive capital, longer development cycles and specialized expertise. Deep tech often involves new hardware, but it always involves building technological products around scientific progress.
“Shockingly enough, these same reasons are the exact reasons why many companies are now investing directly in deep technology, which is very ironic, but it goes with the territory,” Scott said. “Everyone was investing in fast scale, fast launch and go-to-market. They were going to invest in these highly intelligent people who would eventually turn the scientific work into a functioning business one day.”
He is now seeing fintech investors, who previously rejected him in deals a year ago, raising hundreds of millions of dollars in funds specifically targeting deep tech.
While he didn’t name names, some VCs that are big on deep tech include Alumni Ventures, which closed fourth deep technology special fund in 2023; Lux Capital which raised $1.15 billion fund tech fund in 2023. Playground Global raised over $400 million in deep tech in 2023. Two Sigma Ventures, which raised $400 million in deep tech in 2022 (and SEC filings show in 2024, raised another fund of $500 million).
Deep tech now accounts for about 20% of all venture capital funding today, up from about 10% a decade ago. And in particular, over the past five years, “it has become a major destination for corporate, venture capital, sovereign wealth funds 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 new entrants to the region are gearing up for “a huge eye in three years,” and the rush to invest in deep tech has been too quick.
When money flows into a limited number of deals, a typical VC inflation cycle begins, where VCs raise the prices they’re willing to pay for stakes, sending valuations higher and making the space more expensive for everyone — prohibitive for a single fund like his.
In an era where big exits for startups have been limited — thanks to a closed IPO market and the death of interest in SPACs — deep tech still has its successes in fields such as roboticsor quantum computing.
He said he’s not wary of venture capital, in general, or hard-tech companies, but expects there to be a “bullwhip effect” in deep-tech investing, where early-stage investors and VCs rush to replicate previous discoveries or high-profile level profile hits, Scott said.
As with venture capital, he predicts more capital will attract more investors, including those with less expertise, and he said that will then lead to an increase in deep-tech startups. However, this could then create unrealistic expectations and significant pressure on startups to perform, he said. And, since cycles often happen in venture capital, he believes investor sentiment could quickly turn negative if market conditions shift.
“Given the extremely small pool of experts and makers, along with the capital-intensive nature of hard technology, the valuation inflation phase can accelerate, rapidly driving startup valuations,” Scott said. “This affects the entire ecosystem, causing funding problems, slower growth and potential disruptions, which can further reduce investor confidence and create a negative feedback loop.”
