Everything You Should Know About Micro Venture Capital Investing


Everything You Should Know About Micro Venture Capital Investing

Have you heard of micro venture investing? It’s a relatively new method of investing that can be highly profitable. In recent years, venture capitalists have been searching for smaller businesses with ample opportunity and potential for long-term success. The businesses that these venture capitalists invest in have limited financial resources at their disposal.

This form of investing is characterized by making low-risk investments that range from $10,000-$50,000. While it’s possible that an investment won’t pan out, the amount of money you’ve invested shouldn’t be too large to significantly hurt your portfolio. Before you start investing in these smaller ventures, you should know what to expect and how to start.

What Is Micro Venture Capital Investing?

Micro venture capital investing is just like standard venture investing with the main goal being to place smaller investments into businesses. Most venture capital firms require minimum investments of at least $100,000. On the other hand, micro investing gives you the opportunity to invest in new businesses with much smaller amounts.

Another notable difference between micro investing and standard venture investing is that micro investing involves placing your money into businesses that are in the earliest stages of growth, which means that the business has yet to gain any amount of traction. Micro investments have become particularly popular when investing in startups. You can be there at the very beginning. If the business becomes successful, your returns could be exceedingly high.

How to Start Micro Investing

There are several methods you can use to start micro investing, the most common of which is to partner with a micro venture capital firm like Urban Capital Network.

Before investing your money, it’s important to understand that different venture capital firms have different requirements in regards to the amount of assets you need as well as the minimum investment you must make. The firm that you partner with will invest in startups during the seed and pre-seed investment stages, which means that the company has yet to reach the series A funding stage.

Even though it’s somewhat risky to get involved with a company at such an early stage, doing so allows you to obtain larger equity shares. If a startup doesn’t have enough capital to reach series A funding, your investment could help them get there. If you invest with the assistance of a micro venture capital firm, your money will be pooled in a single fund alongside the capital from other investors.

What to Look for in a Company to Micro Invest In

When you’re searching for the right company to micro invest in, your goal should be to look for a relatively new company that is still in the pre-seed and seed stages of funding. These stages of funding will be the first times that a company asks for money.

The majority of companies that raise seed funding have a valuation of around $3-$6 million. Try to find companies that you believe have great ideas but may not have all of the funds they require to get to series A funding.

What Questions Should You Ask Before Investing?

Before you invest in a young startup, there are some questions that you should ask yourself. First, find out if a good management team is in place at the company. If there is, you can be more confident about putting your capital into the company in question. Some additional questions that you should ask include:

  • Is the market opportunity ideal?
  • Do the founders have an understanding of their company’s financials?
  • Are the founders and management team determined to garner long-term success?
  • What positive moves has the business made in its short existence?
  • What risks does the company face?
  • How will your capital help the business gain a foothold on the market?

Getting Started with Micro Venture Investments

As mentioned previously, you should look for a micro venture capital firm like Urban Capital Network. We have a strong reputation and proven results with the companies that we have invested in. Unlike most micro venture firms, Urban Capital Network’s portfolios consist of companies in various stages of fund raising, from Seed to Series A, B, or even C, and that have been backed by much larger traditional venture capital firms. The variation in funding stages and the investments by much larger VCs greatly reduces the risks and increases the diversity of the investment.

You don’t want to provide your money to a firm that doesn’t know how to find startups that are in need of seed funding. Before investing your money, make sure that your assets are high enough to handle this type of investment.

While the amount of money you invest isn’t that high when compared to other venture capital investments, the company you’re investing in won’t necessarily be stable, which increases the possibility that the company will fail. The reduced investment amount should mitigate this risk somewhat.

What Should I Do Before Investing in a Company?

Before you go forward with investing in a company, there are several steps you should take. First of all, it’s highly recommended that you speak with the founder or CEO of the startup that you would like to invest in. You may gain more confidence in your investment if you share the same values and vision that the CEO has.

Make sure that you do extensive research on the company you’re investing in. When you look at the startup’s roadmap for future growth, any knowledge you have of the industry could help you determine if the roadmap is possible or if the company would be a poor investment. You should also have a clear exit strategy in place before investing any of your money.

How Much Does Micro Venture Investing Cost?

Depending on the venture capital firm, a micro investment tends to be around $10,000-$50,000. However, it’s possible for micro investments to be as high as $500,000. It’s essential that you have enough assets before making this kind of investment.

When Should I Sell My Shares?

If the company you’ve invested in is doing well and you need to sell your shares, you may be able to sell your shares to a large venture capital investor once series A, B, or C funding begins. However, most micro investors will only sell their shares when an acquisition or IPO occurs.

Final Thoughts on Micro Venture Capital Investing

Micro investing is a fantastic method for placing your money into new startups without taking on too much risk. Even though the potential for failure is high with early-stage startups, a micro investment is relatively low, which means that the remainder of your investment portfolio should be able to make up for any losses. By investing in the initial stages of a company, future success would help you bring in high returns.