Six Different Types of VC Firms You Need to Know

enture capital is a crucial source of funding for startups and high-growth companies. However, not all VC firms operate in the same way. Understanding the different types of VC firms can help entrepreneurs target the right investors and optimize their fundraising efforts.

In this article we explore the six main types of VC firms and how each one works.

1. Micro VC

Overview

Micro VCs, also known as seed-stage VCs, focus on investing in very early-stage startups. These firms typically manage smaller funds compared to traditional VCs, often ranging from $10 million to $100 million.

How They Work

Micro VCs usually invest in startups that are in their infancy, often before they have generated significant revenue or traction. They provide initial capital to help startups develop their product, achieve product-market fit, and prepare for larger funding rounds. Micro VCs are known for taking on higher risks due to the early stage of the companies they invest in, but they also have the potential for high returns if the startups succeed.

These firms are characterized by their small investment teams, often consisting of just 2-5 partners, supported by a few associates or analysts. The decision-making process in micro VCs is streamlined and fast, with investment decisions often made collectively by the partners.

Micro VCs adopt a hands-on approach, providing direct mentorship, operational assistance, and strategic guidance to their portfolio companies. Their investment horizon typically spans 5-10 years, with an emphasis on early exits or follow-on funding rounds.

Structure

• Investment Team - Small team, often consisting of 2-5 partners, sometimes supported by a few associates or analysts.
• Decision-Making Process - Streamlined and fast, with decisions often made collectively by the partners.
• Support - Hands-on approach, providing direct mentorship, operational assistance, and strategic guidance to portfolio companies.
• Typical Investment Horizon - 5-10 years, with an emphasis on early exits or follow-on funding rounds.

Typical Investment

• Investment size: $50,000 to $500,000
• Investment stage: Seed stage or pre-seed stage
• Focus: Technology startups, innovative business models, and high-growth potential

Micro VCs to Know

• First Round Capital
• Uncork Capital
• Initialized Capital
• 500 Startups
• Haystack

2. Institutional VC

Overview

Institutional VCs are the most traditional and well-known type of VC firms. They manage large funds, typically exceeding $100 million and often reach into the billions, and invest in a wide range of industries and stages.

How They Work

Institutional VCs provide significant capital to startups in exchange for equity. They not only provide financial resources but also offer strategic guidance, industry connections, and operational support. These firms typically participate in Series A and later funding rounds, helping startups scale and grow. They perform thorough due diligence and expect a high level of preparedness and growth potential from the startups they invest in.

These firms have large investment teams, including general partners, venture partners, associates, analysts, and operational experts. The decision-making process in institutional VCs is rigorous and multi-layered, involving extensive due diligence, multiple rounds of internal discussions, and approval from an investment committee.

They focus on Series A and beyond, investing in companies with proven business models and significant growth potential. Institutional VCs provide comprehensive support, including strategic advice, industry connections, operational improvements, and follow-on funding. Their typical investment horizon is 7-10 years, focusing on substantial growth and scalability before exit.

Structure

• Investment Team - Large team, including general partners, venture partners, associates, analysts, and operational experts.
• Decision-Making Process - Rigorous and multi-layered, involving extensive due diligence, multiple rounds of internal discussions, and approval from the investment committee.
• Support - Comprehensive support, including strategic advice, industry connections, operational improvements, and follow-on funding.
• Typical Investment Horizon - 7-10 years, focusing on substantial growth and scalability before exit.

Typical Investment

• Investment size: $1 million to $50 million
• Investment stage: Series A, Series B, and beyond
• Focus: Established startups with proven business models and significant growth potential

Institutional VCs to Know

• Sequoia Capital
• Andreessen Horowitz
• Benchmark Capital
• Accel Partners
• Greylock Partners

3. Corporate VC

Overview

Corporate VCs are investment arms of large corporations that invest in startups. These investments are often strategic, aiming to complement the corporation’s core business or explore new markets and technologies.

How They Work

Corporate VCs invest in startups that align with the parent company’s strategic interests. While financial returns are important, the primary motivation is often to gain access to new technologies, acquire talent, or foster innovation. Corporate VCs can provide startups with valuable resources, including market access, industry expertise, and potential acquisition opportunities.

Corporate VC firms are the investment arms of large corporations, with fund sizes varying widely based on the parent corporation's allocation and strategic priorities. Their investment teams are comprised of corporate executives, industry experts, and dedicated venture investment professionals. The decision-making process in corporate VCs aligns with the parent corporation’s strategic goals, often requiring approval from senior corporate executives or a dedicated investment committee.

They provide startups with access to corporate resources, including R&D facilities, market channels, and potential partnership or acquisition opportunities. The investment horizon for corporate VCs is flexible, often aligned with corporate strategy timelines, which can be longer-term.

Structure

• Investment Team - Corporate executives, industry experts, and dedicated venture investment professionals.
• Decision-Making Process - Aligns with corporate strategic goals, often requiring approval from senior corporate executives or a dedicated investment committee.
• Support - Provides startups with access to corporate resources, including R&D facilities, market channels, and potential partnership or acquisition opportunities.
• Typical Investment Horizon - Flexible, often aligned with corporate strategy timelines, which can be longer-term.

Typical Investment

• Investment size: Varies widely
• Investment stage: All stages, depending on strategic fit
• Focus: Startups that align with the corporation’s strategic goals and innovation areas

Corporate VCs to Know

• Google Ventures (GV)
• Intel Capital
• Salesforce Ventures
• Microsoft Ventures
• Samsung NEXT

4. Government VC

Overview

Government VCs are funds managed or backed by government entities to stimulate economic growth, innovation, and entrepreneurship within specific regions or sectors.

How They Work

Government VCs aim to support startups that can contribute to national or regional economic objectives, such as job creation, technological advancement, or sectoral development. These funds often have mandates to invest in specific industries or geographic areas. While financial returns are important, government VCs also prioritize social and economic impacts.

They offer financial support, regulatory guidance, networking opportunities, and sometimes subsidies or tax incentives. Government VCs typically have a long-term investment horizon, focusing on sustainable development and broad economic impact.

Structure

• Investment Team - Includes government officials, economic development experts, and venture capital professionals.
• Decision-Making Process - Focuses on economic and social impact, often with mandates to support specific industries, technologies, or regions; involves policy-driven approval processes.
• Support - Offers financial support, regulatory guidance, networking opportunities, and sometimes subsidies or tax incentives.
• Typical Investment Horizon - Often long-term, focusing on sustainable development and broad economic impact.

Typical Investment

• Investment size: Varies widely
• Investment stage: All stages, with a focus on strategic industries
• Focus: Startups that contribute to economic development goals

Government VCs to Know

• In-Q-Tel (USA)
• British Business Bank (UK)
• Bpifrance (France)
• Singapore Economic Development Board (EDB) Investments (Singapore)
• KfW Capital (Germany)

5. Family Office

Overview

Family offices are private wealth management firms that manage investments for high-net-worth families. They often invest in startups as part of their broader investment strategy. Fund sizes varying significantly based on the family’s wealth and investment strategy.

How They Work

Family offices invest in startups to diversify their investment portfolios and achieve higher returns. They can be more flexible and patient compared to traditional VCs, often providing long-term capital. Family offices may invest in various stages, from seed to growth, and are known for their ability to make quick investment decisions.

Their investment teams are typically small, consisting of financial advisors, investment managers, and sometimes family members. The decision-making process in family offices is flexible and relatively quick, with decisions made by the family or a family-appointed investment committee.

Family offices have diverse investment focuses, often reflecting the family’s interests, values, and risk tolerance, and can range from seed stage to growth investments. They can offer patient capital, mentoring, and access to the family’s network and resources.

Structure

• Investment Team - Small, often consisting of financial advisors, investment managers, and sometimes family members.
• Decision-Making Process - Flexible and relatively quick, with decisions made by the family or a family-appointed investment committee.
• Support - Can offer patient capital, mentoring, and access to the family’s network and resources.
• Typical Investment Horizon - Very flexible, with some investments being long-term, driven by family goals rather than immediate returns.

Typical Investment

• Investment size: Varies widely
• Investment stage: All stages, depending on family investment strategy
• Focus: Diverse industries, often aligned with family interests or values

Family Offices to Know

• Grove Street Advisors
• Ludlow Ventures
• Lerer Hippeau
• March Capital Partners
• Soros Fund Management

6. Angel Syndicate

Overview

Angel syndicates are groups of individual angel investors who pool their resources to invest in startups. These syndicates can provide significant capital and expertise to early-stage companies.

How They Work

Angel syndicates allow individual investors to collaborate and share the risks and rewards of startup investments. They typically invest in seed and early-stage startups, providing not just capital but also mentorship and industry connections. Angel syndicates often have a lead investor who coordinates the investment process and represents the group’s interests.

The decision-making process is collaborative, with the lead investor performing due diligence and making recommendations to the group, while individual angels decide their level of participation.

They provide startups with mentorship, industry expertise, and connections from a network of experienced entrepreneurs and investors. The typical investment horizon for angel syndicates is 5-7 years, focusing on early exits and significant returns on high-risk investments.

Structure

• Investment Team - Informal structure, led by a lead angel or a small group of experienced investors who coordinate the syndicate.
• Decision-Making Process - Collaborative, with the lead investor performing due diligence and making recommendations to the group; individual angels decide their level of participation.
• Support - Provides startups with mentorship, industry expertise, and connections from a network of experienced entrepreneurs and investors.
• Typical Investment Horizon - 5-7 years, focusing on early exits and significant returns on high-risk investments.

Typical Investment

• Investment size: $100,000 to $1 million
• Investment stage: Seed stage and early-stage
• Focus: High-growth potential startups, often in technology and innovation sectors

Angel Syndicates to Know

• Tech Coast Angels
• Band of Angels
• AngelList Syndicates
• Golden Seeds
• Launchpad Venture Group

Understanding the different types of VC firms can help entrepreneurs tailor their fundraising strategies and target the right investors. Whether seeking early-stage funding from a micro VC, strategic support from a corporate VC, or patient capital from a family office, knowing what each type of investor looks for can improve your chances of securing the investment needed to grow your startup.