Micro VC funding participation in VC deals hit a multi-year high in Q1 2014. Of course, they are not all created equal. Here’s who is doing the most deals, has the strongest networks and best follow-on rates. Venture capital funding is on a tear so far in 2014 – hitting a U.S. quarterly high in Q1 of this year that has not been seen since Q3 2000. And it’s not just high-profile, well-established venture firms wheeling and dealing.

Over the past several years, one of the most significant trends in venture has been the rise of smaller, micro VCs. And they’re being spawned at a rapid rate with almost half of the VC funds raised in the last 6 months being those with < $50M AUM. Of course, there are some elder statesmen in the micro VC game and some of them have already notched some impressive exits. The AUM level that defines a micro-VC is open for debate with some drawing the line at $75 or even a $100 million. In addition with some firms having raised multiple funds, there are micro VCs that, in aggregate, have more than the threshholds one might set. AUM levels aside, micro VCs are focused on the earliest stage opportunities generally investing first at the Seed stage. This analysis puts the rise of micro VCs in context – breaking down both macro-level funding trends and firm-level insights. The full list of micro VCs used in this analysis are listed at the bottom of this brief. The report is broken down into sections as below:

• Early-stage financing trends among micro VCs
• Micro VC deal size trends
• The sub-industries micro VCs invest in most
• The most active micro VCs
• Analyzing the follow-on rates of micro VCs
• Which micro VCs have the strongest network?

Early-stage financing trends among micro VCs

With more micro VCs investing, early-stage deal and dollars involving micro VC firms in Q1 2014 hit $627M across 242 deals globally. Of note, early-stage funding participation by micro VCs has expanded markedly from just a couple years ago. Compared to Q1 2011, micro VC early-stage funding increased 77% while deal activity grew 64%.

Micro VC deal sizes tick up

Interestingly, the average and median early-stage deal sizes with participation from micro VCs have risen since 2011 (in line with the uptick in seed VC deal sizes overall). In Q1 2014, average early-stage micro VC deal size hit its highest level in three years, bumping up to $3.4M. Median micro VC deal sizes have trended above $1.5M in each of the last three quarters.

Ad, sales & marketing tech and BI & analytics are hottest among micro VCs

At the sector level, Internet and mobile dominate micro VC investments – capturing 85% of unique company investments by micro VCs since 2011. And within the Internet sector, Advertising, Sales & Marketing tech and Business Intelligence, Analytics & Performance Mgmt saw the highest percentage of deals among sub-industries. eCommerce marketplaces and apparel & accessories firms also ranked highly, with ed tech rounding out the top 5 most popular markets for micro VC investments over the period. The focus on capital efficient technology sectors makes sense for Micro-VCs given the plummeting cost of technology infrastructure and the ability for startups to prove out a business concept with modest amounts of funding (aka traction). It, of course, doesn’t translate as well to more capital intensive areas such as life sciences (pharma, biotech) and clean tech (renewable energy, batteries, etc). Of note, while enterprise-facing sub-industries were the top places for internet bets by micro VCs, Gaming and Social ranked highest among micro VC investments into the mobile sector. The top 10 sub-industries by unique company investment for the Internet and mobile sectors are highlighted in the chart below.

The most active micro VCs – 500 Startups, SV Angel lead

Which firms are the most active investors in the micro VC landscape? Since the start of 2011, 500 Startups tops the list of most active micro VCs by unique company deals – followed by SV Angel. Interestingly, two New York-based investors – Lerer Ventures and Founder Collecitve – ranked third and fourth on the list, respectively. The chart below shows the 20 most active micro VC investors by unique company deals between Q1’11 and Q1’14 (multiple investments into the same company count as a single investment). Other top 10-ranked funds by activity include Aydin Senkut’s Felicis Ventures, Mike Maples Jr.’s Floodgate Fund and Michael Arrington’s CrunchFund.

Analyzing the follow-on rates of micro VCs

Of the most active micro VCs in the period, ff Venture Capital tops the list of investors by follow-on rate of first investments. Baseline Ventures and Floodgate Fund ranked just behind with Felicis Ventures and Founder Collective rounding out the top 5. It’s worth mentioning that the discrepancy between the 1st and 10th micro VC by follow-on rate was <10% – as all 10 of the firms have shepherded their investments to follow-on capital quite well (over 70%). Note: the ranking does not take into account micro VC investments made in the last 13 months as those were not mature enough to be included in these calculations. The 13 month figure comes from the Series A Crunch report.

Which micro VCs have the strongest network?

Can micro VC go the distance? Yes, but not by itself. It needs larger partners to help support growth further along the investment life cycle. It doesn’t need to be a we/they relationship between Micro VCs and larger VCs. It can, and should, be a collaborative and mutually beneficial relationship that ultimately inures to the benefit of the entrepreneur and the company.

The above quote comes from a post by Roger Ehrenberg of IA Ventures. And while his point rings true, it speaks to a broader point in venture capital which academics have shown – stronger networks drive better VC returns. In the case of micro VCs, this means those with stronger networks to high-quality VCs (both large and small) give them a leg up by virtue of access to stronger dealflow and information, syndicate partners and, perhaps most importantly for micro VCs, follow-on investors. So using CB Insights Investor Mosaic algorithms, we calculated a ‘network centrality’ score to identify the top decile micro VCs (out of 135) that have the strongest investment networks. And based on the data, SV Angel ranks highest, followed by Lerer Ventures, 500 Startups, CrunchFund and Founder Collective. It should be noted that all of the firms listed below are ranked in the top decile of firms and so the differences between their network centrality scores are relatively small. The table below highlights the top 14 micro VCs (top decile) by network centrality and their top 3 VC co-investors by total companies.

The following 135micro VCs were used in this analysis. By definition, micro VCs in this analysis generally met the following three criteria: 1) fund size ≤$100M 2) 80%+ of investments were at the early-stage (seed/Series A) and 3) 10 or more investments since 2011.

212 Capital Partners
500 Startups
Accelerator Ventures
Advancit Capital
A-Grade
AIB Seed Capital Fund
Amplify Partners
Arcus Ventures
Baroda Ventures
Base Ventures
Baseline Ventures
Bee Partners
Blume Ventures
BOLDstart Ventures
Boston Seed Capital
Bullpen Capital
Caixa Capital Risc
Chicago Ventures
CincyTech
Collaborative Fund
CommonAngels
Connect Ventures
Contour Venture Partners
Costanoa Venture Capital
Cowboy Ventures
CrossCut Ventures
CrunchFund
Cue Ball Capital
Cultivation Capital
Dace Ventures
Data Point Capital
Deep Fork Capital
Detroit Venture Partners
Dorm Room Fund
Double M Partners
Draper Associates
Dundee Venture Capital
Earlybird Venture Capital
Elaia Partners
ENIAC Ventures
Expansion VC
Felicis Ventures
Fenox Venture Capital
ff Venture Capital
FireStarter Fund
First Step Fund
Floodgate
Flywheel Ventures
Forerunner Ventures
Fortify.vc
Founder Collective
Founders Co-op
Freestyle Capital
Golden Gate Ventures
Golden Venture Partners
Great Oaks Venture Capital
Harrison Metal
High Line Venture Partners
High Peaks Venture Partners
Hyde Park Venture Partners
IA Ventures
IllinoisVENTURES
Illuminate Ventures
Initial Capital
Initialized Capital
Inventus Capital Partners
Inveready
K9 Ventures
Kae Capital
Kapor Capital
Kaszek Ventures
Kepha Partners
Kibo Ventures
LaunchCapital
Learn Capital
Lerer Ventures
Lifeline Ventures
Lool Ventures
Lowercase Capital
Ludlow Ventures
MentorTech Ventures
Merus Capital
MESA+
Metamorphic Ventures
MHS Capital
Midven
Morado Venture Partners
Moscow Seed Fund
Mucker Capital
Neu Venture Capital
NewSchools Venture Fund
NextView Ventures
OCA Ventures
Okapi Venture Capital
O’Reilly AlphaTech Ventures
Passion Capital
PivotNorth Capital
Plug and Play Ventures
Point Judith Capital
Point Nine Capital
PROfounders Capital
Promus Ventures
Quest Venture Partners
Raptor Ventures
Real Ventures
Red Dot Ventures
Red Swan Ventures
Resolute.vc
Rincon Venture Partners
Romulus Capital
Rothenberg Ventures
S3 Ventures
Sarsia Seed
Scout Ventures
SEED Capital
Sherpa Ventures
Siemer Ventures
Signia Venture Partners
Silverton Partners
SK Ventures
Social Leverage
SoftTech VC
SOSventures
Subtraction Capital
SV Angel
TEEC Angel Fund
Tribeca Venture Partners
Tugboat Ventures
Unitus Seed Fund
Valar Ventures
Vast Ventures
VegasTech Fund
Venture51
Version One Ventures
XG Ventures