Venture capital funding is on a tear so far in 2014 – hitting a U.S. quarterly high in Q1 of this year that has not been seen since Q3 2000. And it’s not just high-profile, well-established venture firms wheeling and dealing.
Over the past several years, one of the most significant trends in venture has been the rise of smaller, micro VCs. And they’re being spawned at a rapid rate with almost half of the VC funds raised in the last 6 months being those with < $50M AUM. Of course, there are some elder statesmen in the micro VC game and some of them have already notched some impressive exits. The AUM level that defines a micro-VC is open for debate with some drawing the line at $75 or even a $100 million. In addition with some firms having raised multiple funds, there are micro VCs that, in aggregate, have more than the threshholds one might set. AUM levels aside, micro VCs are focused on the earliest stage opportunities generally investing first at the Seed stage.
This analysis puts the rise of micro VCs in context – breaking down both macro-level funding trends and firm-level insights. The full list of micro VCs used in this analysis are listed at the bottom of this brief. The report is broken down into sections as below:
- Early-stage financing trends among micro VCs
- Micro VC deal size trends
- The sub-industries micro VCs invest in most
- The most active micro VCs
- Analyzing the follow-on rates of micro VCs
- Which micro VCs have the strongest network?
Early-stage financing trends among micro VCs
With more micro VCs investing, early-stage deal and dollars involving micro VC firms in Q1 2014 hit $627M across 242 deals globally. Of note, early-stage funding participation by micro VCs has expanded markedly from just a couple years ago. Compared to Q1 2011, micro VC early-stage funding increased 77% while deal activity grew 64%.
Micro VC deal sizes tick up
Interestingly, the average and median early-stage deal sizes with participation from micro VCs have risen since 2011 (in line with the uptick in seed VC deal sizes overall). In Q1 2014, average early-stage micro VC deal size hit its highest level in three years, bumping up to $3.4M. Median micro VC deal sizes have trended above $1.5M in each of the last three quarters.
Ad, sales & marketing tech and BI & analytics are hottest among micro VCs
At the sector level, Internet and mobile dominate micro VC investments – capturing 85% of unique company investments by micro VCs since 2011. And within the Internet sector, Advertising, Sales & Marketing tech and Business Intelligence, Analytics & Performance Mgmt saw the highest percentage of deals among sub-industries. eCommerce marketplaces and apparel & accessories firms also ranked highly, with ed tech rounding out the top 5 most popular markets for micro VC investments over the period. The focus on capital efficient technology sectors makes se
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