The Rise of Micro-VC Funds: What It Means for Indian Startups

In this article, we will explore what a Micro Venture Capital Fund (micro-VC) is, what kind of impact it makes, and its impact in India in the 21st century.  

Let's understand what Micro‑VCs are:

Micro-VCs are small venture capital funds. Typically, they invest $10 million in pre-seed and seed startups. If you don't know about seed stages or want to learn more about startup funding stages, then you should read this article.

As per pif.events, Micro-VCs are responsible for 35% of venture capital deals in the US. According to Tracxn, 228 micro-VCs are now active in India.

Now, the question is why there is an increase in Mirco-VCs in all regions. This is probably due to a decline in big funds' investment in small startups. As per the Financial Express report, the number of angel rounds in Indian startups has declined from 580 in 2021 to 139 in 2024 so far, and seed rounds have come down from 1901 to 655 in 2024. This gap has been filled by micro-VCS.

In India, micro-VC funds have been increasing to an average of $30 million from $10-12 million in 2021, as per Inc42.com. Micro‑VCs often syndicate with angel networks or solo GPs to deploy capital quickly, which is helping more startups get funded at the ideation stage than in past years.

Performance and Trends (India vs Global)

Mostly Micro-VCs cheques are big, as per the data, 70% of the capital is invested in seed or early stage. One of the interesting facts, US firms like Rise Capital (a California micro‑VC) have begun raising dedicated India funds.

• Activity:  In India, micro‑VC count and activity have surged. Bain and Inc42 report 100+ new micro funds since 2020 including sector‑focused vehicles in AI, fintech, D2C, gaming, etc. Tracxn notes that new funds like Volt VC (Ahmedabad, consumer focus) and AJVC (Delhi, pre‑seed tech) launched in 2024. Established micro‑VCs (Better Capital, We Founder Circle, Sauce. VC, Neon VC, Upekkha, Eximius, etc.) continue to fund large portfolios of seed startups, often 50–100+ companies each.

• Returns: Hard data on IRRs for micro‑VCs is scarce, but anecdotal evidence suggests strong performance. Industry experts note that top‑quartile micro‑VCs have outperformed many big‑VC funds, with ~7.5% higher returns in the top quartile. This is attributed to entering at lower valuations and owning more equity, so even modest exits can yield multiples. More broadly, micro‑VCs are diversifying risk: they write smaller cheques to many startups (sometimes 75–100 deals/year) so that winners can drive overall returns.

• Comparison: In contrast to India’s nascent micro‑VC scene, Southeast Asia and North America have longer histories of early‑stage angels and micro funds (500 Startups, East Ventures, Jungle, etc.). However, macro headwinds in 2022‑24 (COVID aftermath, inflation) curbed big‑ticket deals worldwide, making seed finance relatively more attractive. In this environment, micro‑VCs have filled the void globally, backing innovation that large funds shun. Their model resonates especially in markets where seed rounds are small (e.g. India’s typical seed ~ INR25–50Cr valuations, per Inc42) and where founders need hands‑on support.

Founder Perspective: Pros & Cons of Micro‑VC Funding

• Advantages: Early‑stage founders often welcome micro‑VC investment. By design, micro‑VCs move quickly with minimal bureaucracy, which speeds up closings. “Micro VC funds also provide flexibility to startups in decision-making, allowing for shorter time frames for investment approvals”. Founders cite direct access to partners and willingness to lead rounds. As Adith Podhar (Gemba Capital) puts it, in a $1M seed round “founders often prefer to collaborate with a lead investor and one or two micro VCs”. Unlike large VCs that treat seed checks as “optionality” and may not follow on, micro‑VCs “care – every deal is important”, giving founders hands‑on support and mentorship. Many micro‑VC managers are ex‑founders themselves, so they can advise on product‑market fit, hiring, and fundraises. Smaller cheque sizes also mean founders retain more equity and control; they only dilute as much as needed to reach milestones. In short, micro‑VCs offer speed, attentiveness, and aligned incentives at the very early stages.

• Disadvantages: The tradeoffs are mainly around scale and reach. Micro‑VCs typically lack the brand name, networks or war chest of large firms. A startup that rapidly outgrows its initial concept may need to seek follow‑on from bigger VCs; micro‑VCs often have limited ability to finance larger Series A/B rounds or international expansion. Additionally, founders must carefully vet micro‑VC teams: some newer micro funds are run by first‑time managers, which can mean less track record or oversight. Finally, the very sectors micro‑VCs chase can carry high failure rates – for example, the current “frothy hype” in AI and next‑gen apps means many early bets may burn out.

• Key Takeaway: Most founders see micro‑VCs as smart money at seed. They bring initial capital plus strategic support when large VCs won’t yet bite. But the downside is that strong later‑stage backing and extensive networks may still require tying into larger VC rounds later.

Investor Perspective (LPs and Micro‑VC GPs)

Limited partners (LPs) and fund managers approach micro‑VCs with a calculated risk‑return mindset:

• Risk/Return: Micro‑VCs inherently target high risk/high return. Industry analysis suggests a small‐fund model can achieve outsized multiples: a micro fund investing at $3–4M valuations only needs ~$400–700M exits for 100x return, whereas a $100M seed by a large fund would require multi‑billion exits. Top-performing micro‑VCs indeed cite “the highest pricing power and best return multiples” from these early bets. LPs expect a few big winners (unicorns or lucrative exits) to make up for inevitable failures. According to reports, “top-quartile micro VC funds” have even outperformed conventional VC funds by ~7.5%.

• Diversification: LPs appreciate micro‑VCs’ model of many small bets. Because micro funds write dozens of checks (often $150K–$500K each) instead of fewer large investments, they spread risk. “Micro VCs make more investments per fund as it allows them to make diverse bets and average out”. This broad portfolio approach can appeal to LPs seeking exposure to ground-floor innovation.

• LP Base: Notably, the wave of micro‑VCs has attracted new LP types. Successful tech entrepreneurs (unicorn founders) are ploughing personal wealth into these funds. For example, Flipkart’s Binny Bansal and CaratLane’s Mithun Sacheti became anchor LPs in early-stage funds in 2024. Family offices and veteran operators are also allocated to micro‑VC. As one Inc42 report notes, between 2015–2022 India’s unicorn founders grew from 10 to 108, creating a class of wealthy LPs who now back seed funds. Even second‑generation family office investors have started writing cheques for micro‑VCs. In short, the LP community is diversifying; many see micro‑VCs as a way to tap early innovation with manageable fund sizes and closer involvement.

• Exit Liquidity: LPs historically worried about the lack of liquidity in early-stage India. KPMG notes micro‑VCs are partly solving this by planning for quick exits via small IPOs or buyouts: many micro funds target 2–3 year exit horizons through secondary sales or listing on SME exchanges. This “availability of liquidity through…secondary deals” gives LPs comfort. Indeed, several corporate-backed micro‑VCs (e.g. retail conglomerates) view seed investments as strategic acquisition pipelines, which provide another exit route beyond traditional fundraising.

Economic and Innovation Implications

By injecting capital at the earliest stages, micro‑VCs are fueling India’s innovation engine and startup employment. Today India has over 140,000 DPIIT-recognized startups, which collectively have created some 1.55 million direct jobs. Micro‑VC‑backed companies contribute substantially to this growth. More very early funding means more entrepreneurs can launch products, leading to more job creation in tech, design, marketing and operations roles.

Micro‑VCs also expand the breadth of innovation. Many new funds specialize in frontier sectors – for instance, dedicated AI/deep tech micro-funds (e.g. GenInnov’s downstream AI fund), climate/clean‑tech funds, genomics/health tech funds, and niche consumer sectors (sports/gaming, new-age retail, etc). By taking risks on these “high-upside” areas, micro‑VCs help cultivate homegrown solutions that larger funds might overlook.

Furthermore, micro‑VCs can invigorate regional ecosystems beyond the established hubs. Several micro‑VC firms are based outside Bangalore/Delhi (e.g. Volt VC in Ahmedabad, Sauce. VC and Neon in Mumbai, Together Fund in Pune/Hyderabad, and All In Capital in Visakhapatnam). Their activities complement state policies (like Bihar’s startup policy and, the North-East Venture Fund) by funding local entrepreneurs. For example, enhanced funding and policies helped Bihar’s startup count grow 54% in 2022–23, and similar growth is seen in emerging hubs (Odisha, Assam).

Finally, micro‑VCs strengthen exit markets. KPMG notes that with more micro-VC‐backed companies pursuing secondary share sales and SME‐exchange IPOs, LPs gain confidence in timely exits. This liquidity not only rewards investors but signals to future entrepreneurs that small startups can reach liquidity events, thereby encouraging more startup creation.

Key Takeaway: 

Micro‑VCs are catalyzing India’s startup-driven innovation economy. By offering seed capital and mentorship in volume, they help convert ideas into viable ventures. This leads to new products, services, jobs and investment flows across regions. Over time, as funded startups mature and exit (through buyouts or small IPOs), the micro‑VC model will have a multiplier effect on growth, competitiveness and technology adoption in India.