Working Paper: CEPR ID: DP17258
Authors: Mario Daniele Amore; Annamaria Conti; Valerio Pelucco
Abstract: Using a large dataset of US investors and their portfolio startups, we analyze the phenomenon of micro VC investors, that is, VC firms managing funds smaller than $50 million. We show that investments by micro VCs have increased at a much steeper rate than those by traditional VCs during 2010-2020. We find significant differences between micro and traditional VCs beyond fund size. Micro VCs invest in early-stage startups more than traditional VCs do. Despite the greater risk of such investments, micro VCs use staged financing less frequently than traditional VCs. Additionally, micro VCs invest in geographically closer startups but their investments span a larger set of industries than traditional VCs. Examining the implications for portfolio startups, we find that startups financed by micro VCs raise less capital than those funded by traditional VCs and are less likely to exit via IPO or acquisition. These results are more pronounced when micro VCs are led by former entrepreneurs and are, at least in part, ascribed to the more founder-friendly management style of micro VCs.
Keywords: venture capital; early-stage investment; fund size; performance
JEL Codes: G24; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lower likelihood of successful exits (IPOs or acquisitions) (G24) | attributed to selection and management practices (J79) |
| retain founders as CEOs (G34) | lower performance outcomes of startups (D29) |
| startups financed by micro vcs (M13) | lower likelihood of successful exits (IPOs or acquisitions) (G24) |
| startups financed by micro vcs (M13) | retain founders as CEOs (G34) |
| startups financed by micro vcs (M13) | less capital raised by startups (G24) |