The Micro-Cap Approach: Filling a Fundraising Gap

There are many ways to fund a start-up and lots of potential financing sources for different stages of a company’s growth. Gingko Capital Investments offers a unique Micro-cap fundraising model that bridges the gap between initial seed money raised from traditional “Angel” investors and the much larger investments that characterize traditional Venture Capitalists.

This Micro-cap fundraising approach is designed to align with the emerging realities of start-up financing:
  • Lower start-up costs: Low-cost hardware, open-source software, offshore talent, and search engine marketing have collapsed the up-front cost of starting a company and achieving customer validation.
  • Larger fund sizes: $100 million was once a “mega-fund” in venture capital. That’s no longer the case, as fund sizes routinely pass $500 million and a few even top $1 billion. This makes it hard for most venture firms to justify investing less than $3-5 million in a series A round.
  • IPOs less likely: In April 2006, the National Venture Capital Association commented that the “venture-backed IPO market languished while acquisitions market maintained bullish pace in first quarter of 2006.” Even if we see 78 IPOs per year, which were observed on average from 1980-2001, the greater abundance of venture capital means more deals will be funded, which reduces the probability that an individual company will reach liquidity through an IPO.
  • Flexible Exit Options: Smaller up-front investments create a greater range of exit strategies where everyone wins. For example, if a business raises a small amount of initial capital, then exceeds its early milestones and decides to swing for the fences, it can then raise a larger sum at a higher price, while preserving ownership. If the business is not ready for rapid growth, it preserves the option for an exit at around $50 million, while still delivering a high return for investors. This dual-track model is less available to companies that raise large amounts of money early.