Leading venture capitalist (VC) firms are increasingly opting for safer investment bets, thus opening up huge opportunities for micro VCs, who are filling the gap in pre-seed and seed investments, that are considered risky by traditional investors.
The corpus size of these micro VCs has also increased to as high as $60 million against less than $10 million a few years ago.
According to data intelligence platform Tracxn, there are 228 micro VCs in India today including We Founder Circle, First Cheque, WaterBridge, among others. In 2024 alone, more than 23 micro VC funds have been launched and many existing firms have launched new funds. In August, two new micro VCs, Volt VC and AJVC, were launched. These firms back early-stage startups across sectors such as gaming, artificial intelligence, D2C (direct-to-consumer) prop tech, among others.
“First-generation home-grown Indian funds like Kae, Blume and others that started over a decade ago used to write under $1 million cheques. Now that they have all grown their fund size and usually write a minimum $1-2 million+ cheques there is a vacuum in the market for micro VCs to occupy and support founders with pre-seed funding for product and market validation,” Kushal Bhagia, founder, All In Capital told Fe.
These funds usually focus on backing niche startups that are no longer in a large fund’s focus.
According to Tracxn, the number of angel rounds in Indian startups has declined from 580 in 2021 to 139 in 2024 so far and seed rounds have come down from 1901 to 655 in 2024.
Besides being a natural industry life cycle trend, the growth in micro VCs is also driven by the fact that it is easy to get started as a micro VC for many aspiring investors rather than to start a large fund and raise institutional capital without any track record.
Launching micro VC is also a good way to break into the VC industry for aspiring startup investors because the supply of jobs in top firms is very limited.
Experts believe that such opportunities give one the highest pricing power and, if the bet is right, the best return multiples. This is also the reason micro VCs make more investments per fund as it allows them to make diverse bets and still average out well.
Micro VC funds also provide flexibility to startups in decision-making, allowing for shorter time frames for investment approvals without lengthy consensus processes. “In a typical $1 million funding round, founders often prefer to collaborate with a lead investor and one or two micro VCs,” Adith Podhar, founding partner, Gemba Capital said.
The micro VC firm invests in SaaS, fintech, B2B commerce, and agritech and the investments typically range from $200,000 to $250,000.
Additionally, experts point out that entrepreneurs find it easier to engage with micro-VCs due to direct access to partners, which can be challenging in larger multi-GP and multi-stage firms.
Experts also believe that smaller VC funds have consistently outperformed larger VC funds across various quartiles, with top-quartile micro VC funds surpassing those of established managers by a notable 7.5%. “They enter at lower valuations, secure substantial ownership and have the potential to achieve higher returns even from smaller exit outcomes,” Podhar added.