Startup general interest

UK micro-VC

By April 6, 2016 April 10th, 2016 2 Comments


I’ve been reading a lot about the development of micro-VC this afternoon. It’s currently the fastest growing subsector of the VC market has mushroomed into quite a phenomenon. You can see the number of funds in the chart above (note that the 2015 figure was as of last August), and chart author Samir Kaji, a bit of an authority on this sector, predicts the total will grow to 350. Growth has been driven by the increasing capital efficiency of startups and outperformance of micro-VC when compared with larger funds.

Samir defines micro-VC as:

  • Primarily initially invest somewhere in the seed stack
  • Invest on behalf of 3rd party Limited Partners
  • Most commonly have fund sizes that are sub-$100MM
  • Initial check sizes of $250K-$2MM

Forward Partners is a tick on all four criteria. That’s why I’m interested.

Also of note is that the barriers to entry for a micro-VC are low, principally because it doesn’t take much capital to get started. Most funds get off the ground with family office and/or high net worth money (that’s how we got started) and many never go on to raise institutional capital.

Off the top of my headI can think of 10 micro-VCs here in London: Forward Partners, LocalGlobe, Spring, Episode1, Seedcamp, WhiteStar, Passion Capital, Connect Ventures, Frontline, Hoxton Ventures, EC1 Capital, and Venrex. I’m sure I’ve missed some, and please let me know if you think of any, but the headline is that we are a smaller fraction of the global micro-VC pool than I would expect given London’s prominence as a startup hub.

Last year UK tech companies raised $3.6bn from VCs, and that compares with $36bn invested by VCs in US tech companies in 2014 (source: FT). If the ratio of UK micro-VC funds to US micro-VC funds was the same there would be 20-25 micro-VCs here – roughly double what we’re seeing.

The VC industry in the UK is growing very fast overall (70% year on year) as our per capita venture investment catches up with the US. Within that I expect micro-VC to be a faster growth segment, mirroring what happened in the US, only two years behind. Samir reports that the consensus view amongst US micro-VCs is that the number of funds will peak in 2017 and then decline. If that’s true I would expect the peak here to come in 2019, with 5-7 new funds each year between now and then.