A Guide to Raise Funds from Micro VCs
Why Founders of Early-Stage Startups Should Be Paying Attention
India's venture capital (VC) landscape is undergoing a significant transformation. While traditional VCs have long been the backbone of startup funding, recent years have seen a shift. Larger VCs, once eager to fund early-stage startups, are becoming more selective, focusing on later-stage companies with proven business models and predictable returns. This cautious approach has created a gap in the market—one that Micro VCs are rapidly filling.
In this guide, we’ll explore the rise of Micro VCs in India, delve into real examples of their impact, and uncover how they could be the perfect partners on your entrepreneurial journey.
Don't miss the end of this guide where we'll provide a list of leading Micro VCs seeking early-stage investments, complete with their contact info—perfect for reaching out with your pitch. Ready to find out your potential investors? Let’s dive in!
What is a Micro VC Fund, and how is it different from a Traditional VC Fund?
Micro VCs, characterized by their smaller fund sizes and nimble investment strategies, have emerged as key players in the early-stage investment ecosystem. According to Praxis 2020 Report on ‘Micro VC funds in India’, the number of Micro VCs in India has grown from 29 in 2014 to 89 in 2020, highlighting a significant shift in the investment landscape.
These funds typically manage between $10 million and $50 million and focus on seed and pre-seed rounds, where the risk is higher but so is the potential for outsized returns. In contrast, traditional VC funds have larger fund sizes ($100 million to several billion), make larger investments ($1 million to $10 million+), and invest more cautiously in startups with lower risk. For early-stage startup founders, this shift presents both opportunities and challenges.
Key Trends Shaping the Micro VC Landscape
Several trends are driving the rise of Micro VCs in India:
1. Lower Entry Barriers: Starting a Micro VC fund has fewer entry barriers, attracting successful entrepreneurs and seasoned operators. These new investors bring extensive experience and valuable networks to the table.
2. Agility in Decision-Making: Micro VCs are not bound by rigid investment committees, allowing for quicker decision-making. This agility enables them to take bolder bets on unproven, innovative ideas.
3. Increased Entrepreneurial Activity: With the number of startups in India exceeding 92,000 as of 2023, according to DPIIT, there is a growing need for early-stage capital. Micro VCs are stepping in to fill this gap, often being the first institutional investors in these startups.
4. Collaborative Approach: Many Micro VCs collaborate with other funds or angel investors to spread risk and increase the growth potential of their portfolio companies.
What Micro VCs Look for in Startups Before Investing
1. Sector Focus: Micro VCs may either invest across various industries or concentrate on specific sectors. For instance, funds like 100X.VC, gradCapital, and Better Capital in India typically invest across multiple sectors, while Eximius Ventures, Yatra Angel Network, and Suvan Ventures focus on targeted industries.
2. Stage of Investment: These funds usually back startups in the pre-seed to pre-Series A stages, with the potential to also join in on follow-on funding rounds, including Series A and beyond.
3. Funding Conditions: Micro VCs often prefer to invest in startups that have progressed beyond the MVP stage. They might provide an initial investment with the possibility of follow-on funding or offer consistent financial support—whether monthly or quarterly—while playing an active role in the startup’s strategic growth.
4. Deal Volume: Micro VCs are capable of managing a high volume of investments, typically engaging in 50 to 100 deals annually.
5. Deal Size: They typically invest between $100-$500k at the seed/pre-seed stage at valuations ranging from $1m to $8m and take a 3-8% stake in the start-up.
Advantages of Securing Funding from a Micro VC Firm
According to the Praxis 2020 Report, Micro VCs have invested US$ 346M in 741 deals across 574 Startups between 2018-20. This is the trend of how micro VCs is investing in early stage startups. Now, let’s understand on why micro VCs could be the perfect partner for your startup:
Early-Stage Focus: Micro VCs specialize in funding startups at the earliest stages of development, when traditional VCs may be hesitant to invest.
Personalized Support: Micro VCs often offer hands-on mentorship and guidance, helping startups navigate challenges and make informed decisions.
Network Access: Micro VCs can leverage their extensive networks to connect startups with potential customers, partners, and industry experts.
Flexible Investment Terms: Micro VCs may be more flexible in their investment terms compared to larger VCs, making them a suitable option for startups with unique funding needs.
The Process of Securing Investment from Micro VCs
The process of finding and securing a deal with Micro VCs involves several key steps:
1. Identify Potential Micro VCs: Start by researching micro VC firms that match your startup's size, sector, focus, and location. Compile a list of those that align with your business needs.
2. Reach Out: Reach out to the micro VCs on your list through emails, social media, or in-person meetings. Utilize your network to help identify and connect with potential investors.
3. Pitch Your Startup: Present your business to the interested micro VCs, emphasizing its value proposition and growth potential to attract their investment.
4. Negotiate Terms: If a micro VC shows interest, engage in discussions to negotiate the terms of the investment, including the amount of funding, equity share, and other deal details.
5. Finalize the Deal: Complete the process by signing the investment agreement and securing the funds.
Following these strategies will help you secure a Micro VC fund to support your startup’s success.
Spotlight on Leading Micro VCs in India
Explore some of India’s top Micro VCs who might be your future investors—connect with them or pitch your startup to secure funding:
The rise of Micro VCs in India marks a new frontier in early-stage investing. For founders, this shift offers a wealth of opportunities to secure funding, build strategic partnerships, and accelerate growth. By understanding the dynamics of the Micro VC landscape and positioning your startup to meet the criteria of these investors, you can navigate this frontier successfully and take your startup to new heights.
If you are building a business, apply to Xartup Fellowship Program where we have a thriving community of 2,400+ founders navigating through one of the toughest time in the Indian startup ecosystem.
It’s been an amazing journey for the Xartup Fellowship Program Fellows
2400+ Alumni
300+ Startups
$5M+ in funding raised by Alumni