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Laxman Pai, Opalesque Asia: US-based micro venture capital funds (sized at $100mn or less) had another record-breaking year in 2019, said a report.
Managers of micro funds surpassed the $8.3bn raised in 2018 with $8.4bn secured through 282 fund closures, according to the report by Preqin and the First Republic.
While the amount of capital closed each year by micro funds has increased steadily throughout the past decade, 2019 marks the first significant drop in the number of funds closed, falling from 348 in 2018.
Investor appetite for micro venture capital funds was strong in 2019. Retirement Plans of Duke University, with 14 known commitments, and New York State Common Retirement Fund, with 12 known commitments, were the most active investors in the US micro venture capital space.
On average, micro funds closed in 2019 spent 16.1 months in the market and exceeded their target size. This is down from an average of 17.6 months for funds closed in 2018 and marks an increase in the average proportion of target size achieved (96% in 2018 vs. 102% in 2019).
Early-stage funds, which secured more than half of the aggregate micro venture capital raised throughout the year, achieved the largest proportion of targeted capital at 110%.
Funds favor a North American focus
The success of early-stage funds in micro venture capital is reflective of the overall venture capital landscape. Early-stage US-based micro venture capital funds favor a North American focus, but some also target regions elsewhere.
Among the 13 US-based micro funds closed in 2019 that are focused outside North America, six are early-stage funds; these vehicles are looking to invest in companies operating in Asia (2) and Rest of World (4).
The largest of these vehicles is RM Global Partners' $64mn RMGP Biopharma Fund, which invests in the Israeli biotherapeutic sector.
For the first year since 2012, no single US-based micro venture capital fund closed in 2019 is targeting European investment. However, there is still US fund manager interest in the region: five funds currently in the market are focused primarily on Europe.
CRCM Opportunity Fund tops the performance list
CRCM Opportunity Fund, the current top-performing US-based micro venture capital fund over the 2010-2017 vintages, employs an early-stage strategy and focuses on Asia; the fund recorded an IRR of 129.0% as of 31 December 2018.
The vehicle invests across a range of industries and has distributed over $1bn to investors, representing a return of over 2,900% on the initial fund size of $38mn.
At the start of 2020, early-stage funds remain the preferred investment for micro-fund managers. Nearly 300 early-stage vehicles are currently fundraising, seeking a combined $12bn.
Overall, North America will continue to receive the vast majority of micro venture capital. However, more US-based funds are coming to market with Europe, Asia, or the Rest of World focus: the number of funds on the road targeting these regions is more than double the number that closed in 2019.
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