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The Five & Dime
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Microcap bubble? One data point.

There’s been a bit of a brouhaha lately around “super seed” funds and speculation of whether we are experiencing a seed bubble.  At least to me, it certainly has felt like there has been a ton of early stage activity, although whether this qualifies as a seed bubble or not, I think it’s too early to tell.  But what is apparent is that there is a ton of new microcap firms that have emerged or closed a new fund in the past 6-12 months alone, and it feels like the pace of new microcap firms being funded is only accelerating. 

In the first half of 2010 alone, I could track down the funding or founding of at least 13 firms or incubators.  This ranges from groups like Founders Fund raising its third fund, to Ron Conway raising $10m for SV Angel, to groups like Betaworks and YCombinator closing VC rounds ($20m and $8.25m respectively).  Other names on the list for 1H 2010 include Floodgate, Lerer Ventures, Lowercase Capital, Lightbank, Right Side Capital Management, IA Ventures, Tomorrow Innovations, plus a few  others that I happen to know have had at least a first close on a new fund.  I’m sure I’m missing some.   Regardless, that’s a run rate of 26 for the year.

Compare that against 2009, for example… there’s Founder Collective, YCombinator (yes, they raised another round last year), Social Leverage, and a handful of regional incubators (Capital Factory, Nextstart, Shotput Ventures).  Any others?   A healthy seven, but nothing compared to the 26 run rate of 2010.

As far as I can track down, it looks like 2008 also had seven firms founded or funded including relatively well known firms like True Ventures, and Harrison Metal.  Other firms I can find include Genacast Ventures, CrossCut Ventures, SproutBox, LaunchCapital and FreeStyle Capital.

I went through this exercise all the way back to 2005 (starting with YCombinator, Maples Investments, Felicis Ventures and Founders Fund), and here is the plot I get:


While the numbers are small overall, it certainly seems like 2010 is the year of the microcap.  Curious, I looked up the same metric for VC funds raised (from Thomson Reuters – CA-based VC funds only).  

Of course, looking at this data on purely a funds raised basis instead of a dollars raised basis gives a different view -- not all VC or microcap funds are created equal.  For every >$100m Founders Fund raise, there are several funds like Lerer Ventures closing an $8m fund.  But can’t help but wonder how much of a bellwether fund raises are.  What do you think?  Are we in ’95, or later?  Or is this the wrong metric to look at?

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