Techstars CEO: Venture capital market in midst of ‘complete reset’

BOULDER — After years of freewheeling investment and ballooning valuations for startups, both founders and investors are adjusting to a new reality in the venture capital market, Techstars CEO Maelle Gavet said during a fireside chat Tuesday at Boulder Startup Week. 

“The VC industry has evolved quite dramatically over the past couple of years,” Gavet said, but a number of factors in the post-COVID-19 economic environment have resulted in a “complete reset of the way the industry works.”
Gone are the days when “money was free” and any old founder with a halfway decent idea could scare up $50 million from investors, said Gavet, who did not directly address Techstars’ decision to move its headquarters from Boulder to New York during her hour-long discussion with moderator and University of Colorado director of innovation and entrepreneurship Stan Hickory.

Over the past decade or so “VC almost became a commodity,” she said, because large institutional investors such as pension and endowment funds feared “they missed out” on chances to cash in on successful tech companies and began throwing cash at startups.

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“Some valuations were clearly out of this world,” Gavet said, and many major investors in the venture capital space offered “zero operational experience” for founders, who often need mentorship to build a startup into a successful business. 

Funds have begun to sharpen their focus on startups in areas where investors are able to provide value, Gavet said, while founders are now asked for more proof of concept before checks are cut. 

“You should work hard for people to give you money,” she said, and that wasn’t always the case with founders in years past. 

Changing dynamics have bred a new generation of founders, Gavet said. “Entrepreneurship has never been as vibrant, as global, as diverse.”

Among this new generation are founders who were laid off during recent rounds of downsizing at large tech companies. Without the safety net of a good-paying job, many tech whiz kids are taking the leap into entrepreneurship. 

Layoffs have also provided these new entrepreneurs with a deep pool of workers from which to build their startup teams, Gavet said. 

Startups with novel solutions to global challenges such as climate change continue to offer the potential for significant return on investment for VC funds, she said. “Big problems make big money.”

While artificial intelligence might be buzzy in business circles these days, Gavet said she doesn’t see AI technology playing a major role in helping VC firms pick winners. “I think it’s B.S.” to rely on AI to make venture bets because there isn’t enough public data on prospective startups to sufficiently train AI algorithms, she said. The same is not necessarily the case for more transparent types of investment, publicly traded companies or real estate, for example.