Inventions and innovations are the engines that power the economy, but the majority of innovators and inventors lack the funds necessary to maximize the market potential of their products.
The traditional process of seeking funding for a company is from the public market using an IPO (Initial Public Offering). However, the requirements of most exchanges are usually out of reach for new businesses.
This is where venture capital comes in. It provides the funding necessary for a promising startup to scale its reach or earnings, then help to take the company public, in the hopes of cashing out during the IPO.
Simple as it sounds, the practice is a lot more difficult, as most startups either fail completely or just fail to grow to expectations. That’s why venture capital firms seem picky, as they try to find that 1% of startups that will grow to exceptional valuations.
Here is a look at some top venture capital firms that are always on the lookout for tech startups.
Top venture capital firms for tech at a glance
|Sequoia Capital||1972||Apple, Google, Paypal, & 1,000+||330+||sequoiacap.com|
|Accel||1983||Facebook, Slack, Dropbox, Etsy||311+||accel.com|
|IDG Capital||1992||Baidu, Xiami, Tencent||200+||idgcapital.com|
|500 Startups||2010||Udemy, ride App, Twilio||250+||500.co|
|Plug and Play||2006||PayPal, Dropbox, SoundHound||650+||plugandplaytechcenter.com|
|Andreessen Horowitz||2009||Twitter, Jumio, Okta, DigitalOcean||150+||a16z.com|
|Y Combinator||2005||Stripe, Coinbase, Reddit, Airbnb||300+||ycombinator.com|
|Tiger Global||2001||Facebook, UiPath, Xiaomi, Spotify||80+||tigerglobal.com|
|Quake Capital Partners||2016||RideKleen, Pippa, Poly6||4||quakecapital.com|
|Zhen Fund||2011||Blueseed, Ehang, niu Tech||40+||zhenfund.com|
How Venture Capital Firms Work
The goal of a venture-capital firm is to make returns on its investors’ money. This means that if a VC decides to invest in your startup, it will also try its best to make sure the startup succeeds. Such efforts can include helping with core company decision-making, hiring, and so on.
The entrepreneur is usually not required to pay back the capital if the venture fails. So venture-capital investing is a risky business. The VC firms, however, minimize these risks by focusing on high-growth industries and investing in similar startups in these industries.
In exchange for the money the entrepreneur receives, the venture capital fund will demand a stake in the startup. There is no fixed price here, but it can reach up to 40% of the startup for about a $2 million early-stage investment, depending on the company and the industry.
Other issues to consider include preferred provisions. This simply means that the VC’s stake has a higher class than the stakes of other investors that may come in down the line.
So, if the business is liquidated or gets sold, for instance, a preferred equity holder will get his investments 100% back, before considerations are made to share the startup’s remaining assets or profits. It can also offer the investor more voting rights, including the right to increase its investment in the company before other investors are considered.
Startup funding is referred to using different terms, and this depends on the startup’s growth period. These terms are listed below:
- Pre-seed funding – Earliest stage. Funds usually come from the founder, friends, family, etc.
- Seed funding – This is where most angel investors and micro VCs step in. It can also include serious investments from friends and family, as well as crowdfunding. Startups can raise as much as $2 million with seed funding.
- Series A round (Early Stage) – This is the first major venture capital funding round, once a business starts looking good. Funding can go anywhere from $2 million to $15 million.
- Series B round (Early Stage) – If the business proves itself, but still needs accelerated growth, then this round comes into play. The average funding here is about $30 million.
- Series C round (Late Stage) – Successful businesses who want to develop new products, break into new territories, or buy out a competitor, go for this round.
- Series D round – Often not needed, but can go on, up to E, F, G, and so on depending on the startup’s needs.
- Exit – This is usually an IPO or a buyout from a competitor, so the investors can cash out.
Venture Capital vs Angel Investors
Startups often deal with angel investors or venture capital firms. Both are sources of investment but are slightly different from one another.
Angel investors are usually individuals with a net worth of $1 million and above or an average annual income above $200,000. They mostly tend to invest in industries they are well versed in. They often invest early and can be great mentors.
Venture capital can come from an individual fund manager or a firm managing a fund. They take fewer risks than angel investors, typically investing only in industries with a good promise. VC firms source their funds from pension funds, large corporations, and other investment vehicles. Their #1 goal is either an IPO or a buyout for the company they are investing in.
|Angel Investor||Venture Capital|
|Source of funds:||Personal||Pooled externally|
|Sit on board:||Maybe||Definitely|
|Funding Stage:||Early||Preferably later|
|Average investment:||$330,000||$11.7 million|
|Expected ROI:||20% – 25%||25% – 35%|
The top 10 VC firms for tech startups
1. Sequoia Capital
Founded in 1972 by Don Valentine, Sequoia is probably the best-known venture capital firm, when it comes to technology startups. It is headquartered in Menlo Park, California, with offices in Israel, China, London, Hong Kong, and India.
The firm focuses on mobile and internet startups, healthcare, energy, and fintech ventures. It also takes part in all levels from seed to the largest funding rounds.
Sequoia has invested in over 1,000 companies in its four decades and together, they control a market capitalization of over $3 trillion today. This list includes many of the world’s top technology brands from Apple to Google, Nvidia, LinkedIn, Oracle, Yahoo!, Instagram, Stripe, YouTube, Whatsapp, PayPal, and so on.
Formally known as Accel Partners, Accel is also an American venture-capital firm. It was founded in 1983 by Jim Swartz and Arthur Patterson. The company is headquartered in Palo Alto, California, with offices in London and Bangalore.
Its list of notable investments and IPO exits include Facebook in 2012, Atlassian in 2015, Braintree in 2013, Etsy in 2015, Cloudera in 2017, and many more.
Accel works with all funding levels from seed to growth stage. And some of its notable early investments including Flipkart, Dropbox, Slack, and even Facebook.
3. IDG Capital
Founded in Boston, Massachusetts in 1992, IDG Capital is headquartered in Beijing, China. It is the first western VC firm to enter the People’s Republic and has invested in over 1,000 companies, with over 200 exits to date.
IDG Capital has also funded more than half of all Chinese unicorns in their early rounds, and this speaks a lot about the firm’s expertise in the region and Asia, generally.
Some of its notable investments include Baidu, Xiaomi, Tencent, Qihoo 360, Bllomsky, Beibei.com, NIO, Animoca, Bilibili, and over a thousand more.
4. 500 Startups
Unlike many of the other firms on this list, 500 Startups is a startup accelerator with offices around the world. This means that they admit promising startups, with mentorship and an initial seed funding, to see how the idea works out.
500 Startups has a number of unicorns in its portfolio, ranging from Udemy to Talkdesk, Canva, Grab, and GitLab. There are also many centaurs with $100+ million valuations and over 250 exits, including Wildfire for $350 million, Viki for $200 million, and Simple for $117 million.
The company has invested in over 2,400 startups in 75 countries to date. It has locations around the world with accelerator programs, including Seoul, Dubai, Mexico City, Dubai, Kuala Lumpur, Miami, and others.
5. Plug and Play Tech Center
Plug and Play is a silicon-valley based early-stage investor and the world’s largest accelerator, founded in 2006 by Saeed Amidi. It has offices in over 30 locations around the world, including Berlin and Hamburg in Germany, Tokyo, Singapore, Beijing, and Amsterdam.
The company offers a 10-week program called Startup Camp for seed round investing. It is also involved in angel-round investing and series A rounds. Notable companies in its portfolio include Credit Sesame, Vudu, Dropbox, PayPal, Zoosk, and many more.
Plug and Play accelerated 1,450 startups in 2019 and 2,065 startups in 2020. It made 162 investments in 2020 with a $108,000 average check size. 66% of those investments were seed stage, while 31% were early-stage rounds. It also had 12 portfolio exits and 4 new unicorns added to its portfolio.
6. Andreessen Horowitz
Although the Andreessen Horowitz firm was officially founded in 2009, the two founders Marc Andreessen and Ben Horowitz had previously invested in tech startups together and separately.
Now officially a fund with over $4 billion under management, it holds about 1,000 companies in its portfolio. It also counts over 150 exits, including DigitalOcean, Okta, and Jumio.
Andreessen Horowitz invests in everything from gaming to e-commerce, mobile, security, and education. It invests both in early and growth-stage companies.
7. Y Combinator
Y Combinator is an early-stage venture capital firm that provides seed funding and mentorship to startups. It was founded in 2005 and is headquartered in Mountain View, California.
Once every 6 months, startups get $125,000 in funding and go through a 3-month accelerator process. This period ends with a final presentation, called Demo Day for pitching the ideas.
Y Combinator has helped launch over 2,000 companies and its portfolio includes impressive brands like Stripe, Coinbase, Airbnb, Reddit, Twitch, and DoorDash.
8. Tiger Global
Tiger Global focuses on both private and public equity investments. And this makes it more of a hedge fund than a pure VC firm.
With over $50 billion of assets under management and combined from over 10 private equity funds, the firm is a VC heavyweight. And it dedicates about 30% of its funds to series A and B funding rounds.
Tiger’s notable investments include Quora, Coinbase, Spotify, Facebook, GitLab, Nubank, and many others.
9. Quake Capital Partners
This VC firm and accelerator was founded in 2016 and is headquartered in Austin, Texas. It is relatively small, compared to others on this list, but it stands out by focusing on funding women, people of color, and those with military backgrounds.
It features a 12-week accelerator program and includes companies such as Recoup Fitness and Whose Your Landlord. Its 4 exits include Pipa, RideKleen, and Love Goodly.
10. Zhen Fund
China is one of the world’s current innovation hotspots and the Chinese Internet is also a world of its own. Zhen Fund caters to this industry and is headquartered in Beijing, China.
The VC invests in the Internet, technology, AI, education, and related fields. It was founded in 2011 by Bob Xiaoping and Victor Qiang Wang, and currently has over $1 billion of assets under management.
Some of its recent exits include Ehang, Yatsen Holdings, EverString, Ucommune, and Ke.com. Others include meicai.cn, perfectdiary.com, and yitutech.com
Coming to the end of this tech-focused venture capital firms list, you can see there is plenty of money out there searching for talent.