The share of seed funds in the total amount raised by Indian start-ups has been rising over the last three years, an analysis of Tracxn’s India Tech 2023 report shows. The share of seed deals in 2023 was higher than in the previous year.
In 2023, start-up funding totalled $8.4 billion, with seed funding at $0.779 billion or 9.4 per cent. The share of seed funding in 2022 was 7.05 per cent. Yet, in absolute numbers, seed funding was at a five-year low in 2023.
On the reason behind the rising share of seed funding, Kishan Karunakaran, CEO of Buyofuel Pvt Ltd, says, “The seed stage typically involves smaller investment amounts. This attracts a larger pool of investors, contributing to a more diverse and active investment landscape at this stage.” Karunakaran, who had raised seed funding for his venture in 2022, found the experience “exceptionally positive”.
On the other hand, Tanul Mishra, CEO of Afthonia Lab, a Bengaluru-based incubator, says that investing smaller capital across several start-ups enhances the probability of success. “There remains a willingness to support innovative ideas,” she adds. She also notes that setting up a company has become much simpler over the years.
Tracxn’s data also shows that over the last five years, there has been an increase in the average deal size of seed-stage investments — $0.95 million in 2023; $0.94 million in 2022; $0.76 million in 2021, when start-up funding peaked in the country; and $0.76 million in 2020.
Explaining this trend, Mona Singh, Co-Founder, India Accelerator, says that during uncertain economic times, investors may perceive early-stage ventures as more resilient to market fluctuations. “Seed-stage investments often involve innovative ideas and disruptive technologies, making them attractive despite the overall decrease in funding,” she says. She adds that investors may also be focusing on unicorns-in-the-making and adjusting their portfolio strategies to allocate more to promising seed-stage companies that are aligned with evolving market trends.
Sameer Singh Jaini, Founder and CEO, The Digital Fifth, a fintech consulting firm, said, “The stability in seed-stage funding can be primarily attributed to the emergent start-ups targeting enterprise and B2B sectors, which are traditionally less capital-intensive.” He added that funders are also looking for a market correction following the investment boom of 2021.
“A lot of seed-stage funding is also driven by passion investors or investors with a deep affinity for specific sectors and business problems, which could be angel investors, institutional investors, or early-stage seed funds,” said Anand Sri Ganesh, CEO of NSRCEL, IIM Bangalore.
(Ayush Arya is an intern with businessline)