"I think the debate that is happening in the asset class is whether this is part of a cycle," Gavet said. "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, and this transformation has (a) pretty significant disruptive effect across the stakeholders of that asset class."
Gavet said Techstars is not a venture capital firm, but as a pre-seed investor that provides the "first check" to founders of technology-related companies, works with venture capital partners once those companies are viable for investments from venture capital firms.
She said Techstars has a pretty good understanding of what's happening in the venture capital world due to its "position at the top of the food chain."
And what's happening in the venture capital world is that if a venture capital firm doesn't have a strong investment thesis or a strong track record going forward, those firms will no longer be viable.
"What's interesting is that if you look at the surge in the number of venture firms in the last five years, a lot of them emerged in that middle area where it's like there's not much that differentiates you from your neighbor," Gavet said.
Gavet said 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 said. "The first one is capital allocators have matured dramatically in terms of the understanding of venture as an asset class. I'm not completely sure why that didn't happen earlier."
But now for the past 12 months, Gavet said she has spoken with more and more limited partners who solidly recognize venture capital as a very volatile asset class.
"Yeah, you bet!" she said. "It's like there's almost a reckoning of 'Oh, venture is not what I thought it was.' I'm not completely sure why they didn't see this before. You get on the one hand LPs who are significantly more aware of what's working and what's not working and where they should be paying attention or not."
Gavet also said those LPs are likely suffering from a liquidity crunch in their venture capital portfolios as well.
"They may still have liquidity in their asset classes, but they're already overexposed to VC so they can't really use the liquidity of another asset class to cover further deployment into VC," she said.
One the other hand, venture capital firms as well are becoming far more conservative about the entrepreneurs they back.
"What we tell our entrepreneurs is good enough is not good enough anymore," Gavet said. "But it used to be two years ago, three years ago. If you had an average product and average traction and an average team, you'd be able to raise (money for funds)."
This is simply no longer the case, Gavet said. Now, she foresees a smaller venture capital industry and greater concentration of money and a change in the economics.
"Venture is the only asset class that doesn't have concentration," Gavet said. "You talk venture, we're talking about hundreds if not thousands of firms in the United States alone that represent about 80% of the market, which is crazy when you think about it."
A change is coming in the level of concentration and the economics of venture capital, Gavet said.
"Are we going to go back to a world where you can have the type of multiple on (the) top line that we seemed to have even three or four years ago? My sense is no. I think again the market has matured, including the public markets. They see tech companies for what they are, which is a much more scalable business, but not infinitely scalable business with no attachment to financial reality whatsoever."