The Rise of Micro VCs: Challenging the Status Quo in Venture Capital

The venture capital world has changed a lot recently. Huge funds raised crazy amounts of money and invested at massive scale. But some investors think going so big isn’t always the best idea. They want VC to go back to smaller, faster strategies.

VC transformed in the past decade. Mega-funds became really common. Firms like Sequoia, Andreessen Horowitz and SoftBank’s Vision Fund raised and put to work loads of cash. This happened thanks to the long tech stock boom, low rates, and the chance to bet on unicorns.

But the market is shifting as tech faces new troubles. Some investors now question if the “bigger is better” view actually helps startups the most. They say too much money flooding into VC led to startups being overvalued, having unrealistic growth goals, and VCs being disconnected from entrepreneurs.

Leading this shift are experienced VCs who worked at big firms. They saw firsthand the downsides of giant funds. They argue pushing to invest tons of cash can mean rushed choices, later stage companies hogging attention, and prioritizing financial games over real value.

A big claim of these VCs is smaller funds can be more agile when markets change. With less capital, they can focus on promising early stage startups without needing to write huge checks or chase unicorns. This lets VCs work closer with entrepreneurs, providing guidance beyond just cash.

These VCs also argue smaller funds better align investors and entrepreneurs. With less to invest, the funds can be more selective and take a long view on value. This can lead to more sustainable startup growth and better returns for VCs over time.

New micro VCs and seed funds directly tackle the mega-fund model’s weaknesses. Smaller funds from $10 million to $100 million back early stage entrepreneurs. Providing smaller checks let them take more risks on fresh ideas.

New models are also emerging, like “evergreen” funds without a 10-year limit so they can hold companies longer. And options like rolling funds and syndicates allow more flexibility to adapt to the market.

The push for small VC has challenges though. They may lose out on top deals or lack resources as startups scale. Some investors prefer mega-funds’ safety and track record. But small fund champions say their focus on early stage and hands-on support gives advantages. As VC gets crowded, investors want differentiated returns potential, so targeted small funds can attract interest.

Debate over VC fund size and strategy will keep going as things change. Mega-funds stay important, but smaller funds bring balance. With uncertain times ahead, the funds that can adapt and help entrepreneurs have an edge. Those pushing back against “bigger is better” are rethinking how VC promotes innovation and long-term success.

There’s room for different fund sizes and models now. The rise of micro VCs may kick off a new VC era prioritizing agility, alignment and basics of backing early innovation.