What is micro venture capital? If you’re in the market for funding for your Palo Alto tech company, you’ve likely heard the term “micro venture capital.” If not, it’s important that you know exactly what it is and why it may be your best funding option at this stage in the game. Micro venture capital is seed funding for early-stage, emerging companies, usually in the amount of $25,000 to $500,000, according to The Venture Alley. Micro venture capital for early-stage companies is considerably smaller than traditional venture capital. Traditional venture capital is usually $2 million to $30 million (or more) for early-stage companies.
There was a time when an early-stage Palo Alto tech company in Silicon Valley would need to hunt for an Angel Investor to get such a small amount of money. However, times have changed. According to Small Biz Trends, there are about 200 more micro venture capital firms in existence today than in 2011. This is largely due to a decrease in the cost associated with launching Palo Alto tech company startups in Silicon Valley. This is good news for tech companies with lower capital needs for several reasons.
Micro Venture Capital Gives You Another Option
Without micro venture capital, your Palo Alto tech company in Silicon Valley would have limited funding options. The first (obvious) funding option for these types of businesses is usually angel investors. Before micro venture capital firms started growing in popularity, early-stage tech company owners had to find angel investors to raise capital under $2 million. Finding an angel investor who has in interest in investing in your specific industry can be difficult, especially if you’re not well connected in the tech industry.
A few years ago, if a tech company owner wasn’t able to find an angel investor, their only other option for outside funding would be debt financing. If the company was a startup with no revenue, there’s a good chance they would have only qualified for a microloan or unsecured business line of credit. If they were in business for at least one year with revenue, they would’ve qualified for revenue based debt financing.
Lenders like Silicon Valley Bank also provided loans to startup tech companies in Silicon Valley that had strong revenue projections and contracts with clients that they expected to generate revenue from. The bank would request a small percentage of ownership in the companies for better credit terms. (As of the date this blog was written, the website link to the Silicon Valley Bank page about startup financing wasn’t live which lead me to believe they aren’t currently accepting new applicants). Thankfully, the micro venture capital realm can take their place (for now).
Where Can I Get Micro Venture Capital and How?
According to CB Insights, many of the micro venture capital firms in existence today are based in Silicon Valley. They are primarily investing in internet and mobile tech companies. According to CB Insights, on the internet side, their top industries are advertising, sales, and marketing, business intelligence, analytics, and performance management, marketplace, apparel and accessories, and education and training. On the mobile side their top industries are gaming, social, advertising, sales and marketing, customer relationships management and education and training. It’s important to know the types of businesses micro venture capital firms are investing in (before you approach them). You’ll know if you have a better chance of getting funding from them and no time will be wasted. If your business falls into one of the aforementioned categories, micro venture capital may work for your Palo Alto tech company in Silicon Valley.