Small venture capital funds making a beeline for startups: Report

Investments into the startup ecosystem by micro venture capital funds (investments under 30 million) have jumped manifold to USD 341 million in the past three years

Investments into the startup ecosystem by micro venture capital funds (investments under USD 30 million) have jumped manifold to USD 341 million in the past three years through 730 deals across 566 startups, says an industry report.

In the past decade, micro VCs have emerged as promising players in the domestic startup investor landscape providing the much needed risk capital as well as hands on mentorship to their portfolio companies as they seek to achieve product market fit and become ready to scale with stable business models.

The number of micro VCs have rose to 88 funds in 2020 from just 29 in 2014. The increase in the number is driven by the booming startup ecosystem, says a joint report by the Indian Private Equity and Venture Capital Association (IVCA) and Amazon Web Services (AWS) along with Praxis Global Alliance.

The report is based on the responses from around 50 micro VCs on their investment strategies, portfolio companies as well as their value proposition for such invested companies.

Micro VCs have infused USD 341 million into the domestic startup ecosystem through 730 deals across 566 startups in the past three years, says the report.

Micro VCs typically invest in sunrise sectors, and around 60 per cent of such investments in 2020 were into the SaaS/AI sector, BFSI, healthcare and life sciences, consumer apps and platforms, ecommerce and listing platforms, but 52 per cent of funds in general are sector-agnostic.

IVCA president Rajat Tandon noted that over the years several smaller funds that started a decade ago have not only enabled an established startup-VC ecosystem that we witness today, but have also outgrown themselves, supporting their early bets in later rounds as well to such an extent that some of those startup founders have grown to become angel/VC investors or limited partners themselves.

Madhur Singhal, managing director at Praxis Global Alliance, said micro-VCs are making contrarian bets and supporting untested ideas.

The IVCA is the apex body promoting the alternative investment asset class in the country, promoting stable, long-term capital flow from private equity, VCs and angel capital.