Micro venture capital (VC) firms have invested $341 million in 566 startups across 730 deals between 2018 and 2020, according to a survey.
Co-authored by the Indian Private Equity and Venture Capital Association (IVCA) and Amazon Web Services with business analytics and research firm Praxis Global Alliance, the report also included survey responses from 46 micro VC funds.
The report defines micro VC funds as those that have an active fund size of less than $30 million, or angel networks that typically invest in pre-seed or seed funding rounds with cheque sizes ranging from $500,000 to $2 million.
The report said that the number of micro VCs in India increased from 29 in 2014 to 88 in 2020. While eight micro VC funds were announced in 2019, 2020 saw six, including 9Unicorns Accelerator Fund, Waterbridge Ventures’ FastForward programme and PointOne Capital.
Calling the sector a high risk, high return play, the report said that the LP interest in micro VC funds is driven by better return potential and small cheque sizes, apart from co-investment opportunities.
“The micro VC stage of investments with a smaller fund size is the highest risk capital asset class that is supporting India’s next-gen innovation driven entrepreneurs,” Rajat Tandon, president of IVCA, said.
“Several smaller funds that started a decade ago have not only enabled an established startup-VC ecosystem that we witness today, but have also outgrown themselves, supporting their early bets in later rounds as well,” he said.
Nearly 83% of the survey respondents said that micro VCs addressed the funding gap between angel investments and larger institutional cheques. Nearly 46% of the micro VC funds were launched over the past two years by former CXOs of startups or former venture capital professionals embedded in the startup ecosystem, according to the respondents.
Of the 46 micro VC firms surveyed, 52% were found to be sector agnostic. However, of the micro VC investments in 2020, 60% were in the sectors of SaaS, artificial intelligence, and consumer apps and platforms.