Micro VCs: True Enablers Of Startups At Early Stage

"Micro VCs offer more flexibility than that large VC firms. It is not possible for a startup to raise funds without the assistance of Micro VCs firms," states Mohamad Faraz, Upsparks

According to statistics, in the last three years, micro VCs have made a total contribution to the Indian start-up ecosystem of over $341 million. Compared to a large VC or institutional investor, a micro VC offers quicker turnaround times, support, and guidance, which is responsible for this increase. Larger VC funds or institutional funds, in particular in India, tend to be less aggressive in their first round of investing and the majority of early-stage investment is driven by micro-investment firms.

An angel investor is a high-net-worth individual who provides financial support to tiny startups or business owners, frequently in exchange for owning stock in the enterprise, whereas a venture capitalist is a private equity investor that lends money to businesses with strong development potential in exchange for an equity stake. Startups or small firms that wish to expand but lack simple access to funding are supported and helped by both angel investors and micro venture capitalists (VCs).

Mohamad Faraz, Founding Member, Upsparks said, “The segment has really evolved or has really grown significantly in the last two to three years. One of the important reasons it is less volatile is it's a very lean structure. If you see large funds under $30 million would be can be considered a micro VC’s lean structure, very focused on the early stage itself. Because early stage, when I say it is pre-seed, that's the kind of sweet spot for micro VC."

Micro venture capitalism includes modest seed investments made to fledgling businesses in the early stages. This important risk capital which can range from $25 to $500 thousand is what firms need to grow and develop a reliable company strategy.

The majority of current micro-VCs are founded by seasoned founders who can support and mentor these aspiring business owners through their own professional networks and provide business solutions.

Upsparks' Faraz further added that earlier startups in pre-seed funding rounds would not be able to obtain such an amount of funding. However, today, a startup could not raise a round of funding without the assistance of a micro-VC; they are the true enablers. Two or three micro-VCs could construct a fund of a million dollars, and so on, unless and until you have a strong pedigree.

A micro VC is especially suited to see this model of high-risk, high-return investment by providing assistance with managing consumer outreach, luring larger investors for subsequent stages of fundraising, and assisting in the team-building process from scratch.

According to a survey conducted by India Venture Capital (IVCA), AWS, and Praxis Global Alliance between 2018 and 2020, micro VC firms invested $341 million in 566 businesses through 730 agreements. Furthermore, it noted that from 29 in 2014 to 88 in 2020, India will have more micro venture capital firms.

Beyond finance, a startup in its early stages seeks investors with operational experience and business knowledge. There is still a knowledge gap concerning the investment landscape, and startup founders are not exposed to the various types of funding sources available to them.

Moreover, Faraz mentions, “As a fund manager, you need to be very flexible and open to sort of support these entrepreneurs very early on in the journey. I think micro VC as a category has been a big enabler, especially for the Indian startup ecosystem. For the last two or three years, more and more funds are being set up. A lot of people from the ecosystem are turning into fund managers, you can call them emerging fund managers.”

Before seeking money, companies must comprehend the market players, do a thorough analysis, and choose which type of investor can truly keep them on track with their business goals and help them on their trip. Certain values must guide the start-up and investor cooperation to ensure mutual benefit and business progress.

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