Abstract
Given its spectacular growth in recent years, venture capital is gaining significant attention among strategy scholars. In this paper, we shed light on a novel and unexplored phenomenon, namely the emergence of small-sized VC funds (micro VC hereafter). Using US data from 2000 to 2020, we show that micro VC has experienced a remarkable increase, which is economically larger than that of business angels and traditional VC. Moreover, we show that micro VC has an idiosyncratic investment style, more focused on founders and early-stage firms. Studying the performance implications for startups, we find that being backed by micro VC has a much smaller effect than traditional VC on the subsequent number of rounds and the amount raised. Moreover, while micro VC increases the likelihood of startups’ success, the effect is half of that of traditional VC. Micro VC’s performance is even poorer when the fund manager is a former founder.
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