Driving Forces, a deep tech and fintech venture capital fund, is closing down despite its healthy performance.
Solo general partner Sidney Scott explained the decision on LinkedIn, citing increasing competition in a crowded investment space as contributing factors.
The Rise and Shift in Deep Tech Investment
Scott launched Driving Forces five years ago, using his experience at Amazon with robotic fulfillment systems and optimization technologies.
His $5 million fund, driven by an interest in hard tech and a commitment to innovation, saw success in the company.
The portfolio included investments in companies like SpaceX, Rain AI, xAI, and Atomic Semi, yielding over 30% net internal rate of return (IRR), which outpaced the average deep tech IRR of 26%, according to Boston Consulting Group.
“My philosophy: AI/Deep Tech, Fintech, and Sustainability are NOT sectors, but driving forces across all industries,” Scott wrote on LinkedIn.
“All future companies will be powered by AI, develop their rails, and derive revenue from financial services, with sustainability embedded in their mission. I still firmly believe this.”
However, he stated that the venture landscape has drastically shifted quickly, with everyone competing for a fairly small pool of hard tech deals.
Deep tech was initially a niche market, but many avoided it due to its high capital requirements and longer development cycles.
It has become mainstream, attracting significant investment from corporate, venture capital, sovereign wealth, and private equity funds.
The Crowded Deep Tech Space
The rapid influx of capital into deep tech has led to intense competition. Scott observed a shift as many investors, who previously focused on software-as-a-service (SaaS) and fintech, turned their attention to deep tech.
Notable firms like Lux Capital, Playground Global, and Two Sigma Ventures have raised substantial funds targeting this sector.
Scott notes that this saturation has created challenges for smaller funds like Driving Forces, and competing for a limited number of high-quality deals has driven up valuations, making it difficult for solo general partners (GPs) to operate efficiently.
Due to these inflated valuations, Scott believes investing in early-stage hard tech startups is no longer feasible for funds below $50 million.
He predicts that more capital will attract more investors, including those with less expertise, and he told TechCrunch that will then lead to a surge in deep tech startups.
“I’m excited to explore new opportunities, applying my experience to help founders build projects, close rounds, facilitate joint ventures, or provide advice,” said Scott.
Image Credit: Sidney Scott
