Tiny VC Funds Are Thriving in the SoftBank Era

At a time when mega funds dominate the private capital industry — and when SoftBank is reportedly looking to raise another $100 billion venture fund — venture capital funds at a fraction of the Vision Fund’s size are gaining traction with investors.

Fundraising for so-called micro funds — investment vehicles with $100 million or less under management — has quadrupled over the past decade, according to a joint report on the U.S. venture capital industry from Preqin and First Republic Bank.

Last year, venture capitalists raised a record $7.4 billion for sub-$100 million vehicles, closing an all-time-high 268 funds, according to Preqin data. And three months into 2019, VC managers had already closed 64 micro funds — closing more funds in one quarter than they did in the entire year of 2009.

More often than not, these tiny funds are being raised by experienced venture capital managers, rather than investors raising their first funds. Preqin data show that 63 percent of micro funds closed last year were run by experienced firms — a proportion that has climbed to 72 percent for funds closed in the first quarter of 2019.

“This shows that there is a clear place for smaller funds within the offerings of larger venture capital fund managers,” the report stated.

[II Deep Dive: What Happened to the ‘Venture’ in Venture Capital?]

The most active U.S. investor in micro VC funds, according to the report, is the Duke University retirement plan, with 14 known commitments. Tying for second with nine commitments each are the Grantham Foundation — founded by GMO co-founder Jeremy Grantham and his wife Hannelore — and the New York State Common Retirement Fund. 

Other investors active in micro funds included insurer Prudential Financial and the University of Texas Investment Management Company.

Early-stage funds, including seed funds, account for the majority of U.S.-based micro VC funds in the market, with 383 funds seeking to raise a combined $19.4 billion, according to Preqin data. Another 199 micro funds are seeking to raise a combined $9.1 billion to pursue “general” venture capital strategies. 

Just 15 micro funds in market are raising money for expansion and late-stage venture investments, according to the report.