Micro venture capital

Micro venture capital is money invested to seed early-stage emerging companies with amounts of finance that is typically less than that of traditional venture capital.[1] In contrast to traditional venture capital which is money used to invest in companies looking to fund growth (also referred to as a Series A round of funding), micro venture capital consists of smaller seed investments, typically between $25K to $500K, in companies that have yet to gain traction.[2][3] In the United States, the number of micro venture capital firms have continued to rise rapidly over the last 5 years, and have become an important source of finance for startup companies.[4][5]

Principles

Micro venture capital generally share certain characteristics:[6]

  • Initial investment at the seed stage
  • Investment on behalf of 3rd party Limited Partners
  • Most commonly have fund sizes that are less than $50MM

Most micro venture capital firms pursue startups that are at their seed stage because of their lower initial cost basis.[7] Though there is a high probability that the majority of these startups will not survive long enough to reach a Series A round of funding, micro venture capital firms are willing to make the investment because startups generally do not require large sums of capital to bring a product to market,[8] and because they believe that it requires only a few successful companies for them to see profitable returns.[9]

Examples

In the United States, there are over 236 micro venture capital firms, with more than half located in Silicon Valley.[10] Notable examples include SV Angel, which had invested in Dropbox (a file hosting service valued at $10 billion as of January 2014),[11] and Lowercase Capital which had invested in Uber.[12][13]

See also

References
  1. "How Micro-VCS Invest (And How They Compare to Traditional VCS)". Business Insider.
  2. "How Micro-VCS Invest (And How They Compare to Traditional VCS)". Business Insider.
  3. "What is Micro-Venture Capital?". 5 September 2014.
  4. "The Micro VC Shakeout".
  5. "The Micro VCS Are Coming". 8 December 2015.
  6. "Where is the Micro-VC Market Going?". 4 September 2014.
  7. "How Micro-VCS Invest (And How They Compare to Traditional VCS)". Business Insider.
  8. "The Micro VC Shakeout".
  9. "How Micro-VCS Invest (And How They Compare to Traditional VCS)". Business Insider.
  10. "The Past, Present & Future of Micro-VC". 4 August 2015.
  11. "Dropbox Value Said to be $10 Billion in BlackRock Funding". Bloomberg.com. 18 January 2014.
  12. "Uber Raises Funding at $62.5 Billion Valuation". Bloomberg.com. 3 December 2015.
  13. "The Micro VCS Are Coming". 8 December 2015.
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