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Significance of Small Businesses in an Economy


There has been a significant surge in micro-venture capital funding in India. Amidst various investors in the startup ecosystem, including angels, incubators, accelerators, family offices, India-focused large funds, and global VC funds, micro-VCs have gained prominence. According to Praxis, their number has increased from around 30 in 2014 to 90 in 2020.


GS3- Indian Economy- Growth and Development

Mains Question:

In the context of the recent surge in micro-venture capital funding in India, examine their role in the development of small businesses in India. (15 Marks, 250 Words)

Significance of Small Businesses in an Economy:

  • The significance of small businesses as the lifeblood of any global economy cannot be overstated. In the past fifty years, there has been a notable shift from an industrial economy dominated by large corporations to an innovation-driven entrepreneurial economy where small businesses play a pivotal role.
  • According to the World Bank, a staggering 95% of all enterprises in India are small businesses, and despite their size, their contribution to the country’s overall growth is substantial.
  • A recent Forbes report highlights that small enterprises contribute 33% to India’s GDP, 40% to its overall industrial production, and 42% to its exports.

Micro- Venture Capitalists:

These emerging entities, identified as micro VC funds, operate with a more modest capital corpus, ranging from $10 million to $100 million, in comparison to their larger counterparts with fund sizes between $50 million and $1 billion.

What Criteria Do Micro VC Funds Consider Before Making Investments?

Micro VC funds take into account the following factors when making investments:

  • Sector: Micro VC funds can adopt either a sector-agnostic or sector-specific approach. In India, examples of largely sector-agnostic micro VC funds include 100X VC, gradCapital, and Better Capital, while sector-focused investments are made by Eximius Ventures, Yatra Angel Network, and Suvan Ventures.
  • Funding Stage: Micro VC funds typically invest in startups seeking pre-seed to pre-Series A funding. They may also participate in follow-on rounds in Series A and beyond.
  • Conditional Funding: Micro VC funds generally provide funding to startups at the post-MVP (minimum viable product) stage. They may issue their initial investment with follow-on contributions or disburse monthly/quarterly funds while actively participating in the growth strategy.
  • Number Of Deals: Micro VC funds have the capacity to invest in a range of 50 to 100 deals annually.

Micro- Venture Capitalists Supporting Small Businesses:

  • Recognizing the crucial role of small businesses, fostering an entire ecosystem to support their growth and survival is imperative.
  • Access to smaller funding options is particularly beneficial for small businesses, as approximately 50% of enterprises fail to extend beyond the initial years.
  • Micro-VCs typically engage in pre-seed and seed funding rounds, managing a smaller capital corpus of USD 10-100 million, in contrast to larger VCs with fund sizes ranging from USD 50 million to USD 1 billion.
  • Current statistics reveal that micro-VCs have infused USD 346 million into 574 Indian startups through 741 deals from 2014 to 2020.
  • These micro-VCs encompass both sector-specific and sector-agnostic funds, with prominent examples being Blume Ventures, gradCapital, Atrium Angels, Better Capital, Capital A, PointOne Capital, Eximius Ventures, Yatra Angel Network, Fluid Ventures, and Pentathion Ventures.
  • Distinguishing between angels, family offices, and micro-VCs can be challenging, as the micro-VC market in India often includes wealthy individuals, high-net-worth individuals (HNIs), family offices, and angel investors pooling their funds and expertise to navigate startups efficiently for potential high returns from their high-risk investments.
  • Due to their low-ticket size funding, micro-VCs are more likely to expect a 100X return. Moreover, micro-VCs need to decide their investment size and invest in a larger number of companies to fully leverage their investment strategy.

Advantages that micro-VCs offer:

  • Firstly, micro-VCs exhibit more flexibility than traditional VCs in choosing the stage of funding and sector.
  • Secondly, startups can benefit from the hands-on approach of micro-VCs and leverage their expertise in marketing and strategy.
  • Thirdly, micro-VCs are likely to be more approachable, providing entrepreneurs with valuable feedback on business strategies and decisions.
  • Fourthly, micro-VCs tend to be patient and willing to wait longer for returns on their investments.
  • Lastly, since the funding is smaller, micro-VCs are less likely to exert significant control over the ownership of startups. Therefore, for entrepreneurs seeking to retain control of their companies for a more extended period, securing funding from micro-VCs can be a favorable option.


While a typical micro-VC may have limited financial and non-financial capital compared to traditional VCs, their growth represents an encouraging development in the Indian startup ecosystem. Micro-VCs play a crucial role by providing options for pre-seed funding, offering vital initial support to small entrepreneurs.

February 2024