Since the global financial crisis in 2008 when an all-time high USD9.3 billion was raised, micro venture capital fundraising has seen six consecutive years of growth, increasing from USD6.5 billion in 2009 to reach USD8.5 billion in 2015, according to a report by Preqin.
Furthermore, over the past decade micro venture capital funds have consistently represented the majority of VC funds reaching a final close; micro-sized funds accounted for 61 per cent of all venture capital funds to close in 2015 and more than two-thirds (67 per cent) the previous year. So far in 2016, 169 micro venture capital funds have reached a final close raising a combined USD2.4 billion.
The micro venture capital fundraising market is becoming increasingly competitive with 501 vehicles currently out raising, targeting USD23 billion in investor capital. The sector currently accounts for over two-thirds (69 per cent) of all VC funds in market and a quarter of the aggregate target capital. Of these micro venture capital funds 68 per cent are targeting USD50 million or less with the remaining 32 per cent seeking between USD51-100 million.
The US remains the primary geographic focus for the majority of (58 per cent) of micro venture capital funds in market, followed by Asia (19 per cent) and Europe (11 per cent). Asia-focused funds, however, have seen more funds (60) reach a final close than the US (54) in 2016 YTD.
2016 stands to be the fifth year in which the proportion of funds reaching or surpassing their target size has grown. So far this year, 75 per cent of micro venture capital funds have achieved or exceeded their target size, an increase from 49 per cent that did likewise in 2012.
The ten smallest venture capital funds in market are each targeting USD1 million-3 million, of which nine intend to invest principally in North America. Conversely, 74 funds are each looking to raise USD100 million, collectively accounting for 32 per cent of aggregate targeted capital by micro venture capital funds.
Since the GFC, the average fund size of micro venture capital funds closing has not exceeded USD41 million nor dipped below USD33 million, with the peak in 2014. Even in 2016 YTD, with the majority of funds at least reaching their target size, the average fund size stands at USD39 million.
A confirmed 2,253 institutional investors have active mandates suited to micro venture capital investments, 55 per cent of all investors active in venture capital. This also includes 1,665 that have at least one past investment in a micro venture capital fund.
“With both robust investor appetite and fundraising targets in the pipeline, the micro venture capital industry seems set to continue carving a niche within the early stage investment community,” says Felice Egidio, Head of Venture Capital Products, Preqin. “These smaller funds play an important role in funding growth in global communities, operating much closer to ground-level which enables them to identify and approach smaller opportunities, especially in the developing world.
“As the interest in the micro venture capital industry increases, micro-sized funds will no longer act as a function of necessity and instead attract more established fund managers. With the fundraising landscape becoming increasingly competitive, managers will need to provide solid track records and favourable terms to attract distinguished investors.”
