Micro private equity firms also called “micro PE” firms or “micro-cap private equity” firms, are a recent development in investment.
This kind of PE fund puts small amounts of cash into startup companies and small and medium-sized businesses (SMEs).
The investments are close-ended, which means that shareholders can’t get their money back until they sell the whole fund.
In this article, we’ll find out more about the top seven micro private equity firms you need to check out.
What is micro private equity?
Micro private equity is an investment fund that purchases or invests in small (or ideally, “micro”) companies.
The sector contributes to the more extensive mergers and acquisitions market.
Although micro PEs often invest in less-than-five-million-dollar companies, the actual purchase price often exceeds that threshold.
What is micro private equity investing?
Let’s say you’ve decided to invest in a private equity fund. Your money, then, will be under the management of a private equity firm (aka the adviser).
A private equity fund, like a mutual fund or hedge fund, is a shared investment vehicle. Here, the adviser invests on behalf of the fund using the money contributed by its various investors.
They generally take a controlling position in a portfolio company and actively manage and lead it to maximize its value.
On the other hand, private equity firms tend to concentrate their efforts on assets that need some time before they can be sold.
However, there are also other private equity firms that invest in fast-growing enterprises or startups.
What are micro private equity firms?
A micro private equity firm invests in startups or running companies via venture capital, leveraged buyout, and growth capital.
These firms raise capital to invest according to one or a combination of investment strategies.
A micro private-equity firm raises capital pools or private equity funds for these transactions.
They receive a management fee and a percentage of each fund’s profits (aka carried interest). Micro private equity companies buy a controlling minority stake in a company to maximize their investment. These firms get a return on their investments through:
- Initial public offering (IPO) – Company shares are offered to the public, allowing a partial instant realization to the financial contributor and a public market to sell further shares;
- A merger or acquisition, in which the business is sold for cash or shares from another business;
- Recapitalization, wherein the company’s existing cash reserves, new debt, or equity financing are used to pay back existing owners (here, the financial sponsor and its private-equity firms) with fresh capital.
You shouldn’t confuse micro private equity businesses and investment funds with hedge fund firms.
Hedge fund firms make short-term investments in securities and other liquid assets but have less direct control over a company’s activities.
Unlike private equity firms that manage risks and seek growth through long-term investments, hedge funds trade securities in the short term.
How long do micro private equity firms keep companies?
It is a type of long-term financing in which investors receive an interest in an unpublicized company in exchange for a portion of its stock.
Typically, micro-private equity investments aim to help rescue troubled businesses and startups. They also pave the way for a company to go public through an IPO or a sale to a larger corporation.
Their contributions to economic growth—in the form of new jobs and financial gains for investors—are substantial, and it helps society develop by improving the quality of its enterprises.
Typically, micro private equity firms maintain investments between four and seven years before selling their holdings (or “exiting”) to a corporate acquirer or another investor through the stock market.
How much do small private equity firms make?
There has been a dramatic increase in direct investors, such as private equity funds and other organizations.
Firms with earnings before interest, taxes, depreciation, and amortization (EBITDA) of approximately $5 million are an underserved but essential part of the economy that provides attractive valuations and growth potential.
Micro-private equity is a strategy employed by several firms.
In the beginning, private equity funds provided investors with a way to participate in ventures that were too huge for individual investors to handle.
On the other hand, the opposite is true of micro private equity investing, which gives investors access to a pool of businesses that are too small for the average investor to source and manage.
Due to their unique characteristics and absence of cyclicality in entry multiples, micro private equity roll-up investments complement traditional private equity allocations.
As a result, in volatile or peak cycle investment vintages, returns are more reliable and frequently beat the general private equity market.
Top 7 micro private equity firms in 2022
1. Tiny Capital
Tiny Capital was founded by Andrew Wilkinson and Chris Sparling as a holding company for many internet ventures.
The company purchases controlling interests (or outright ownership) in “profitable, basic, and often boring” online enterprises.
Tiny launched in 2007; today, they have multiple enterprises employing hundreds of people.
Using Warren Buffett’s simple approach of closing billion-dollar deals by making the negotiation process as pleasant as possible, Tiny has been buying existing businesses and letting them run themselves.
The business turned out so well many startups want to invest for an extended period with Tiny.
Here’s how it works:
- Speak simply: Tiny doesn’t squander people’s time. They talk straight: no BS, jargon, or useless financial terms.
- Keep culture safe: Don’t change what makes each company special by disrupting the culture.
- Prevent synergy: They don’t allow any of their businesses to collaborate. And instead, Tiny lets them run autonomously.
- Make the founders happy: Since the owners of the acquired businesses entrust their business to Tiny, they make every effort to realize their stated mission.
2. SureSwift Capital
SureSwift Capital is a venture capital firm that focuses on SaaS. To advance them to the next level of growth, SureSwift Capital buys SaaS companies from independent founders.
Their business plan is to own and expand SaaS enterprises by offering excellent value to present and potential consumers.
They have a remote team of professionals proficient in product management, development, user experience design, and marketing.
They then put the money they make from the portfolio back into their company to increase the number of features available, market themselves to new clients, and ensure the satisfaction of their existing clientele.
3. Fork Equity
Ryan Kulp created Fork Equity in 2017. Fork Equity is a micro private equity firm specializing in acquiring and expanding niche SaaS companies.
Along with other eCommerce-related items, their portfolio also includes Fomo.com.
4. Chenmark Capital Management
Chenmark Capital Management is a holding company that looks to buy small- to medium-sized enterprises to foster long-term expansion.
5. XO Capital
XO Capital is a privately owned investment vehicle started by partners Andrew Chu, Danny Chu, and Henry Armistead.
They acquire and expand small, successful software businesses and effectively use their expertise to capitalize on incredible innovations properly.
They specialize in innovations that already have product-market fit, as demonstrated by a thriving group of paying customers.
6. LTV SaaS Fund
Founded in 2018, LTV SaaS Fund is a privately held business specializing in Investment Management.
The goal is to provide returns for investors quickly and over the long term.
Final thoughts on micro private equity firms
The growth of micro PE is making it easier for more people to stop being afraid and start building their own online empires.
As tech keeps making its way into business, we can expect the number of digital products to grow faster, giving savvy investors and hard-working builders more chances to make money.
We are now living in the time of the “micro-entrepreneur”. In a field where big goals and big ideas have been the norm, those who think small may soon get ahead.