Investors Dominate Early-stage Startup Investment Deals In India: InnoVen Capital Report

Edtech, B2B platforms and consumertech were the most favored sectors last year but investors expect to favor SaaS, healthtech, fintech and edtech this year

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Venture debt firm InnoVen Capital released the fifth edition of the Early-Stage Investment Insights Report FY 2020-21, outlining current trends in the early-stage (Seed/Pre-A) Indian startup ecosystem.

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The survey focuses on investment activity across Seed and pre-Series A stage, by analyzing market information, along with a survey conducted with 16 leading institutional early-stage investors.

The funding momentum from 2019 continued into 2020 with $279 million of investments being made, despite few months of slowdown caused by the pandemic. B2B, consumer, and edtech were the most favored sectors for surveyed investors. The majority of investors (74 per cent) expect the funding activity this year to remain at the same level or go even higher. The top sectors investors are interested this year includes Enterprise SaaS, healthtech, fintech and edtech, the report said.

According to the survey, over 80 per cent of respondents invested more this year compared to last year, with the majority of investments in the $500,000-$2 million range. Valuations of seed/Pre-A rounds continue to go up, with 50 per cent of deals being done at over $5 million valuation. Almost 75 per cent of surveyed investors believe that the valuations were on the higher side driven by intense competition for high-quality deals and entry of large established VCs in this space.

Investors mentioned that the quality of the founding team was by far the most important factor they focus on while evaluating deals. Almost 50 per cent of their portfolio companies from last two years 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 report further shared.

“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. We are pleased to release the fifth edition of this report. 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. At InnoVen we continue to be optimistic, and look forward to engaging with founders and investors.” remarked Tarana Lalwani, senior director, InnoVen Capital India.

The survey also highlighted that there was a preference for companies with more than one founder, with 89 per cent of funded start-ups having two co-founders. Bangalore, NCR and Mumbai continue to form the core of the startup ecosystem. Over two-thirds of companies invested were based in Bangalore or NCR.