Venture Capital Faces Major Transformation, Says Techstars CEO Maelle Gavet

Maelle Gavet, CEO of pre-seed investor Techstars, has pointed out that the venture capital industry is undergoing a significant transformation, emphasizing that the recent challenges faced by venture capital funds indicate a broader restructuring of the asset class.

In an interview at iConnection’s 2024 Global Alts conference on February 1, Gavet expressed her views on the current state of the venture capital landscape. According to her, the struggles with fundraising and returns are sparking a critical debate within the asset class about whether this is a cyclical downturn or a more profound transformation.

“I think the debate that is happening in the asset class is whether this is part of a cycle,” Gavet stated. “You know, like in real estate, you have a cycle every seven to eight years. Whether it’s basically the same thing venture is going through, or — which is my thesis — this is something deeper, which is venture as an asset class is maturing, and as a result of that, is transforming.”

Techstars, primarily a pre-seed investor providing the “first check” to founders of technology-related companies, operates at a vantage point that affords insight into the dynamics of the venture capital world.

Gavet highlighted that the surge in the number of venture firms in the last five years has led to increased competition and a lack of differentiation. She noted that not every venture capital firm will be viable in this evolving landscape unless they have a strong investment thesis and a robust track record.

“The broad success of venture capital led to the belief that ‘everybody can be a VC these days!’ I don’t think that’s coming back for multiple reasons,” Gavet remarked. She emphasized the maturation of capital allocators’ understanding of venture as an asset class, leading to a more discerning approach.

Gavet also mentioned a growing awareness among limited partners (LPs) about the volatility of venture capital as an asset class. Over the past 12 months, she has observed LPs recognizing the challenges and reconsidering their exposure to VC, possibly facing a liquidity crunch in their venture capital portfolios.

The CEO of Techstars noted a shift in venture capital firms towards greater conservatism in selecting entrepreneurs to support. “What we tell our entrepreneurs is good enough is not good enough anymore,” Gavet stated, highlighting the increased scrutiny on product quality, traction, and team strength.

Looking ahead, Gavet anticipates a smaller venture capital industry with a greater concentration of funds and a shift in the economics of venture capital. “Venture is the only asset class that doesn’t have concentration,” she remarked, signaling an impending change in the level of concentration and the overall economics of the venture capital landscape.

As venture capital navigates this transformative period, VC stakeholders are expected to adapt to a more discerning and conservative investment environment, marking a departure from the more lenient standards of the past few years. They may further gravitate towards the private equity deals or venture further into the digital assets space.

Financial Desk