Early stage investments touched $594 mn in 2021, a 63% YoY growth, study shows

2021 proved to be a remarkable year for Indian start-up ecosystem, more so for early stage ventures with the funding across seed and pre-A rounds seeing a 63 per cent growth at $594 million, as per a survey by venture debt firm Innoven Capital. The growth was driven by 30 per cent increase in early stage deal volume and a 20 per cent increase in average deal–size, the report stated.

The report focuses on investment activity across seed and pre-series A stages, by analysing market information, along with a survey conducted with 20 leading institutional early-stage investors.

Respondents say that fintech, B2B platforms, and eterprise SaaS were the top 3 sectors where they invested in 2021. More than 30 per cent of the start-ups funded in 2021 were at the pre-revenue stage, which demonstrates the ability of great founding teams to raise seed capital at a concept or early traction stage, the report argued.

It added that 67 per cent of respondents invested more in 2021 compared to 2020, with the majority of deals in the $500,000-$1 million size.

Valuations of seed/pre-A rounds continue to go up, with 56 per cent of deals being done at over $5 million valuation. However, the majority of investors (which the report peggs at 47 per cent) expect the funding activity to see some slowdown this year. In 2022, as per the report, industries like SaaS, Web 3.0, fintech, healthtech and creator economy will be major focus areas of investment.

Most early-stage investors (52 per cent) feel that the emergence of angel syndicates has been positive for the overall ecosystem. However, they believe that higher activity levels in the seed stage by large established VCs and Tier-1 VC seed programs have increased competition and has driven valuations higher, the survey noted.

Investors chose the quality of the founding team as the most important factor they focus on while evaluating deals, followed by the attractiveness of the sector. The survey also highlighted investors having a high preference for more than one founder, with 76 per cent of funded start-ups comprising of two co-founders.

Bengaluru, NCR, and Mumbai continue to form the core of the start-up ecosystem. Over two-thirds of early-stage investments made by respondents were in companies that are headquartered in Bengaluru or NCR, the report showed.