subject: A New Trend: Micro Venture Capital [print this page] Micro venture capital financing and super-angel funds, are meant for small projects, that cannot attract traditional venture capitalists. For entrepreneurs it means having more approachable sources of capital, after they have used their own savings, as well as money from family and friends. Smaller amounts of seed money are put by these investors into early-stage startups, such as internet software companies. This Micro-VC trend is believed to be ascending in the next years, especially in the broad web applications and consumer internet field. Here are some factors that contribute to more entrepreneurs appealing to micro funds.
It has become more and more difficult for business start-ups to attract the attention of venture capitalists and mostly unique business ideas and innovations with very high chances of long-term success are likely to get funded. What about small entrepreneurs that do not aim at the success of Google or Facebook ? They need these micro-funds, with lower and faster returns but also higher chances of success and a lower risk.
Nowadays it takes less capital for a startup as the costs of developing, building and launching a certain technology startup have gone down significanty. It also takes less capital for sustaining a small business. This new capital efficiency trend implies going further with less money than in the past. Obtaining and using larger funds also means justifying their sizes and providing higher returns for the limited partners.
More and more emerging companies can build and launch their services or products cheaper and faster. They can also use cheaper marketing strategies, such as social media and blogs, to promote and sell. This is another reason why small companies do not require large amounts of outside financing.
Whether a small company, with a small amount of capital, is going to succeed or fail, it will be cheaper and faster and this scenario, with an accelerated pace, is preferred by VCs to long and expensive failures. Whe could talk about a so-called time compression, that is, shorter time until the product or service is on the market, then a faster revenue and exit and micro-VC investors can thus back more different companies, with minimal risk. This strategy could probably be considered a matter of thinking small when you decide start a business, but it is also a matter of playing safe.
However, areas such as biotechnology, clean tech, telecom or semiconductors still require a lot of capital to build significant businesses. In these cases more traditional venture capitalists, with deeper pockets and strong relationships, will be able to support the investments. In order to create firms with lasting value, that change the world with their big visio, entrepreneurs will have ro raise several million.
Micro-VC can go the distance, as long as it has other larger partners that are able to support the company's growth and development along the following investment rounds, all for the benefit of the entrepreneur and, of course, of the final consumers.
