While these are not micro-funds anymore, they are attracting disproportionate attention in the venture capital ecosystem.
When Eric Bahn, Elizabeth Yin and Shiyan Koh decided to launch Hustle Fund in 2017, they felt well-positioned for success. Friends of Stanford University, they brought the experience of the 500 Startups Accelerator, Instagram and NerdWallet, and their approach - writing checks for $ 25,000 to startups and doing a due diligence after the fact - seemed like a new twist on traditional venture capital. They were shocked.
"I think as a first time fund manager we completely underestimated how undifferentiated we were," Bahn told Hfrance.fr. Nice pitch deck for investing in seeds, they heard. Join the list. To stand out with its now $ 30 million-plus second fund Hustle 's partners are very active on Twitter, social media service Bahn quit before the need to self-market becamenot obvious - by writing threads about participations and starting a business and generally mixing it up with their peers. And a certain flavor of t This strategy increasingly involves micro-fund investors looking to compete in a capital-flooded venture capital market, with new entrants like Banana Capital, Turner's start-up fund. Novak and Atelier Capital, focused on economics and Li Jin's passion, both having made recent waves (it's no coincidence, each has around 70,000 followers on Twitter).
For those who take the pulse of the venture capital market from the online discourse, micro VCs seem everywhere. But the data suggests a different story: There isn't more of it - it's just amplified, using specialist approaches and smarter internet distribution to exceed its weight. "For those who are raising now, there is another rathat's VC "says Bahn. We have no choice but to be self-promotional. Gone are the days when you just needed to raise capital and people will come to you.
(From left to right) Eric Bahn, Shiyan Koh and Elizabeth Yin are general partners from the Hustle Fund. Courtesy of the firm.
Micro-funds - defined as vehicles less than $ 50 million or less $ 100 million to invest in startups - have best served the entire industry in volume, according to PitchBook data first revealed in the Midas Touch newsletter . These pools represented 51% of funds closed in 2020, compared to 58% of funds closed in 2010. As companies, these funds represented only 6% of capital raised overall in 2020, compared to 14% a decade earlier.
These figures come as a surprise to the practitioners themselves. "Are you sure there are less funds today than 5? + Years ago?" Ryan Hoover, co-founder of Product Hunt and founder of Weekend Fund, responded in an email. side of the table, raising seed money as the founder of Robinhood in 2013. And of course one of the limitations of PitchBook's data is that this total doesn't include the angel network of industry, which is also experiencing a decline in activity. , or small alternative financing solutions such as working capital or evergreen vehicles.
According to PitchBook analyst Joshua Chao, there are a few possible explanations for the disconnection . The first: a loaded PR playbook that's more reminiscent of the Miami mayor's office than stuffy old venture capitalists. This is in part due to the evolving nature of those who back funds such as their investors, called limited whereas large venture capital firms mightNot offering a college endowment or a pension fund like the Texas County and District Retirement System, emerging fund managers are increasingly looking to other venture capitalists, startup founders and angel investors as their base. 'investors. "I think micro and seed funds rely heavily on public relations," Chao said. "It happens through the news cycle that he or she launches a micro-fund because it 's really essential for raising capital.
Such supporters are then unsurprisingly louder when a new fund is announced, says Nikhil Basu Trivedi, co-founder of VC fi rm Footwork, whose announced a fund of 175 million of dollars in April. “When these funds are announced, these GPs blow up their sponsors: 'We are announcing the company, talking about our launch,' he says. “It's the same as entrepreneurs who start businesses that speak to their investors. It's just happening on both sides of our ecosystem and Twitter's echo chamber is making it much more public. "
A great online presence is also increasingly important to get noticed. by entrepreneurs because big money leaves earlier, Chao says, noting that multi-billion dollar asset companies like Andreessen Horowitz and Tiger Global will now support start-ups alongside their much larger checks. comparison, a single billion dollar fund wasclosed throughout 2010.
The percentage of funds under $ 50 million has been declining for years, funds under $ 100 ... millions of people are seeing the same trend. Hfrance.fr
Another key tactic f or micro-funds that can make them more visible: they specialize to stand out. Take AllerFund, which is currently raising a $ 20 million fund to focus on start-up businesses battling food allergies, or Preface Ventures, a $ 23 million fund that targets enterprise infrastructure companies. created by former engineers. Others focus on geography, like TampaBay.Ventures, a $ 20 million vehicle for the founders of Tampa Bay, Fla., Or Cortado Ventures, a $ 20 million vehicle focused on Oklahoma. And a growing number of funds are focusing on traditionally under-represented founding groups, like Sixty8 Capital, which invests in black entrepreneurs, or XFactor Ventures, a group focused on supporting female CEOs.
"Micro-funds tend to have a very peculiar idearecise of what they want to invest in ", explains Chao." Saying, 'Hey, we just raised a fund focusing on ESG or new founders in Brazil', that makes some more news . "
This shift to specialization does more for the industry than just attracting attention. "The positives certainly outweigh the negatives in this case," he says. “There can never be too much capital. Not all startups are the next Stripe or Uber; they may not have this elevated vision. They may not be able to attract capital from larger venture capital firms. The specific women founders and people of color funds, in particular, target these startups to put them on a level playing field and equalize much of the capital.
And specialized micro VCs can provide expertise and funding to startups. in areas that are nottraditional hotbeds of interest to investors. At Lever VC, Nick Cooney has spent over 15 years in the alternative protein market, watching generalist VCs burn down support companies without expertise in the complex business dynamics and science of the category. In 2018, he co-founded Lever with Lawrence Chu, the former founder and president of BlackPine Private Equity; they track 1,600 alternative protein startups and have an in-house scientist to conduct due diligence on opportunities. Lever is more than happy, he says, to share the flow of transactions and his expertise with generalist co-investors as businesses grow.
“In the field of cultured meat, if an investor looks at a particular company that they know about in the media, they will hear how that company represents its advantages and strategy,” Cooney explains. "Unless theydon't understand what all other cultured meat companies do, it's hard to assess this claim. that go beyond innovations related to OB-GYN. A 20-year investment veteran with ExSight Ventures and Highline Capital, Ghiya launched FemHealth Ventures with Noraan Sadik at the end of 2020. “When I speak with the founders, they are thrilled because they say, 'We are having a good part of our presentations to tell what the category is and how it is handled today, "and for us they can skip all that," she said. “We can recognize companies and assess them more effectively and efficiently. "
Such expertise in the field will generally be welcomed by other investors. At Bowery Capital, an enterprise software-focused company founder and managing partner Mike Brown says the company will welcome, or even seek, specialists to fill a gap.round of funding. He quotes Klir, a Canadian startup that monitors compliance data for the water service industry. While Bowery may offer advice to Klir founders for starting a B2B business, the staff at the company are not experts in water supply systems or utilities, Brown notes. . So in Klir's $ 3.1 million roundtable that was raised last November, Bowery sought out several specialists in government contracts and utility management to partner with the deal. "I find it hard to think that five to ten years ago I would be able to find these people," he says.
So while venture capital micro-funds are not as prolific as they seem, there are many players in the venture capital industry who would be welcome. In a way, startups themselves take advantage of many of the same tactics as companies.ises that they support to create a sensation. While being the loudest fund in the market isn't the best investment strategy on its own, no one seems keen to turn the volume down. "It's so exciting, I think, in large part because the social contract is evolving between founders and their investors," Bahn said. “About ten years ago, I said venture capital was much more like a commodity. Now that more and more operators are entering the mix as emerging managers, the value expectations of founders have changed. It 's great to see a new