According to Jadeh Makhsous News Agency, risk tolerance in investing in small, early-stage startups has declined, while the gap between accelerators and venture capital (VC) firms has widened. Experts argue that despite their limited capital, micro VCs can prevent the dissolution of young companies and play a significant role in advancing the innovation cycle. However, securing follow-on funding and achieving successful exits remain their primary challenges.

A report by Peyvast highlights micro VCs as emerging players in the investment and startup ecosystem. Positioned between angel investors, accelerators, and larger VC funds, micro VCs typically provide seed and early-stage financing to support startups in their initial growth phase.

Defined as smaller-scale venture capital funds with assets ranging from $10 to $50 million, micro VCs have grown by over 120% in recent years. Industry experts emphasize their value not only in financing but also in contributing domain expertise, decision-making support, and operational guidance throughout the collaboration. Their involvement often extends beyond funding to networking, entrepreneurial partnerships, and sourcing innovative ideas. Still, they face hurdles such as attracting top talent, securing capital for later stages, ensuring profitable exits, and maintaining independence.

Micro VCs as Intermediary Investors

In today’s volatile economic climate, with shrinking investment volumes in technology startups, the role of micro VCs has become increasingly important. As traditional VCs focus more on mid-to-late-stage startups, early-stage ventures face mounting challenges in market entry and survival. Mehdi Eskouei, Deputy CEO of TrigUp, stresses the importance of micro VCs in filling this funding gap. He views them not merely as financiers but as strategic partners for promising teams in Iran’s innovation ecosystem.

Globally, micro VCs dominate seed and early-stage investments, while larger funds tend to concentrate on Series A and beyond. Micro VCs, with their ability to inject smaller amounts of capital quickly, provide a vital gateway to growth. Though their financial performance (measured by IRR and multiples) is often slightly lower than traditional VCs, their agility, hands-on support, and willingness to back unconventional sectors strengthen their position in the entrepreneurial ecosystem.

Micro VCs often distinguish themselves by their level of care and engagement. Unlike traditional VCs, representatives from micro VCs frequently integrate with startup teams, participating in governance, HR, sales, and marketing strategies. Eskouei notes that such collaboration goes beyond financial input, offering continuous monitoring and mentorship throughout the partnership. While exits carry inherent risks, he argues that they are less risky than accelerator exits, as micro VCs typically work with more mature teams.

Technology Takes Priority

Data shows that nearly 40% of micro VC funding flows into the information and communications technology (ICT) sector, particularly in areas such as artificial intelligence, cloud computing, and mobile applications.

According to Yazdanpanah, Head of Investment at Golrang Ventures, micro VCs prioritize startups capable of launching minimum viable products (MVPs) and entering markets with relatively modest funding. He points to AI as a key driver in lowering development costs, reducing reliance on large-scale capital, and encouraging smaller investments. Consequently, sectors like fintech, applied AI, SaaS, digital health, edtech, and on-demand services stand out as prime candidates for micro VC funding.

The strategic direction of a micro VC often mirrors the background of its founding institution. For example, a micro VC backed by a banking conglomerate is likely to fund startups aligned with the needs of the financial industry.

Although the concept of micro VCs remains relatively underexplored compared to traditional VC models, global statistics indicate robust growth in their presence and activity. In light of shrinking startup investment pipelines and warnings about diminishing opportunities for new businesses, experts argue that strengthening the role of micro VCs could prove crucial in sustaining entrepreneurial innovation.