What's the Deal With the $100K Micro Venture Capitalist?
May 27 2013, 19:03 | By SME Mentor
Several of them have chosen to take the approach of funding angel investment stage businesses, and the ticket sizes may be in the vicinity of $100k. How do we make sense of all this?
I am really old school when it comes to Venture Capital. So for me venture capital means an equity investment of a couple of million dollars. If this is the investment size, the natural consequence is that the valuation of the investee business should be several million dollars at the least. That is why the emergence of the micro-VC is an interesting, though disruptive, development in the past couple of years.
These micro-VCs have two characteristics:
How Does the Emergence of the Micro-VC Change the Start Up Funding Landscape in India?
Small ticket venture funding was thus far the preserve of the Angel investor. As VCs have started encroaching upon the same space, a couple of interesting changes are visible in the early stage landscape:
(i) More Money Is Available at the Early Stage
One problem with angel investors has been that they have are not too reliable in their availability to invest. Extraneous factors such as the stock market index, the specific individual leading a deal, and others, have a significant influence on the angel investor's choice to invest. Not to mention the fact that many angels who genuinely intend to invest, often end up not doing so as they do not find the time to perform due diligence and go through the documentation. Given that micro-VCs are in-effect fill time angels, this segment has turned more robust.
(ii) The Likelihood of Follow-On Investments
Often angel-funded companies do pretty well, but not well enough to reach a multi-million VC round. Angels often do not budget on a follow-on round for their investments. In fact several angels believe that if they "have to" participate in a follow-on, the investment was not a good one. But there may be some genuine start ups that could do well with an intermediate round of funding between their angel-round and series-A. Micro-VCs usually bargain on doubling down on their winners, and hence more follow-on capital is available for deserving candidates.
(iii) A Strong Deal Pipeline for Micro-VCs
Another way to look at follow-on investments is that entering early allows micro-VCs first dibs for larger investment rounds when a company evolves into a series-A candidate. To that extent we may say that the sub $100K rounds by micro-VCs actually are more like a premium being paid by them to retain the option of investing at favorable terms later.
The Outlook for Micro-VCs
~ Ajeet Khurana is an angel investor, trainer, author, entrepreneur and digital marketer. He is a member of the screening committee of Mumbai Angels, one of India's oldest angel networks. In addition, he is a trainer for new angel investors with NEN (National Entrepreneurship Network). He is on the boards of Carve Niche Technologies and Rolocule Games, You can reach him on LinkedIn and Twitter.
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