Despite the pandemic, early-stage investments were 6% higher in 2020

Sangeetha Chengappa | | Updated on: Jun 03, 2021
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Funding momentum to continue in this calender year too

Early-stage funding momentum of $263 million across 205 deals in calendar year 2019 continued into 2020 with $279 million of investments being made across 178 deals, despite a few months of slowdown caused by the pandemic, reveals the Early-stage Investment Insights Report by InnoVen Capital, Asia’s leading venture debt firm. Early-stage investments were 6 per cent higher in 2020 vs 2019 driven by the 23 percent increase in average deal size.

The report focuses on investment activity across seed and pre-series A stage, by analysing market information, along with a survey conducted with 16 leading institutional early-stage investors including 3one4 Capital, Artha Ventures, Blume Ventures, First Cheque Ventures, Indian Angel Network, India Quotient, Inflection Point Ventures, Kae Capital, Mumbai Angels, Omnivore, Orios Venture Partners, Stanford Angels,, Titan Capital, Waterbridge Ventures, and YourNest Capital.

The majority of investors (74 per cent) expect funding activity this year to remain flat or go even higher. While B2B, Consumer and EdTech were the most favoured sectors for investors in 2020, the top sectors investors are interested in this year are Enterprise SaaS, HealthTech, FinTech, and EdTech.

Majority investments

Over 80 per cent of respondents invested more in FY21 compared to the previous fiscal, with the majority of investments less than $5 million. Valuations of seed/pre-series A rounds continue to go up, with 50 per cent of deals being done at over $5 million valuations. Almost 75 per cent of investors believe that valuations were higher driven by intense competition for high-quality deals and entry of large established VCs in this space.

The quality of the founding team was by far the most important factor for investors to focus on while evaluating deals. Almost 50 percent of their portfolio companies from the last two years (2019 &2020) were able to raise a follow-on round. The key reason for companies failing to raise a follow-on round was because they were addressing a niche market opportunity.

The survey also revealed that investors preferred start-ups with more than one founder, with 89 per cent of funded start-ups having two co-founders. Over two-thirds of start-ups invested in were based in Bangalore or NCR.

“Early-stage investment activity has proven to be resilient despite the pandemic, with bigger transaction sizes and higher valuations, a clear sign of a maturing early-stage ecosystem. By continuing to partner with some of the most prominent early-stage institutional investors in the country, we continue to deepen our understanding of the early-stage ecosystem” said Tarana Lalwani, Senior Director, InnoVen Capital India.

Published on June 02, 2021

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