Early-stage investments saw the lowest deal volume in four years in CY23, but with increased ticket sizes and valuations. The sectors that saw the most interest were B2B platforms, Consumer Tech, and Artificial Intelligence.

These are part of the findings from the eight edition of the ‘Early-Stage Investment Insights Report’ by InnoVen Capital, a venture debt firm, outlining current trends in the early-stage (seed and pre-A series) Indian start-up ecosystem. The findings are based on market information along with a survey of 22 institutional early-stage investors.

About 64 per cent of investors considered the valuations to be reasonable in CY23 compared with 45 per cent in 2022. Thirty two per cent of the respondents reported an increase in their investment activity in CY23 compared to CY22, while 41 per cent observed a decrease in the number of deals they closed.

The valuation for seed/pre-A rounds saw an increase, with 41 per cent of deals with valuations greater than $10 million, up from 20 per cent in 2022. Seventy seven per cent investors expect higher investment momentum in CY24 while only 5 per cent expect a slowdown.

Bangalore and NCR continue to lead in early-stage investment activity. Considerable investments were made in start-ups headquartered in Chennai (8 per cent), Pune and Hyderabad (each with 4 per cent of total deal flow).

Early-stage funds are seeing increasing reliance on domestic capital, with 45 per cent of funds reporting a 100 per cent domestic capital raise, compared with 20 per cent in CY22. Family offices and ultra high net worth individuals continue to be a top source for domestic capital for early-stage venture capital funds, followed by institutions and fund of funds.

Tarana Lalwani, Partner, InnoVen Capital India said, “In 2024, we anticipate the early-stage funding environment to improve, with higher focus on emerging sectors like Gen AI, Deep Tech, and Climate Tech. However, investors will have a bias for sustainable business models, experienced founding teams and will do more extensive due diligence.”