India’s early-stage funding surged 63% in calendar year 2021, with investors pouring $594 million in startups at seed and pre-Series A rounds across 316 deals, a report by InnoVen Capital showed.
The report, titled ‘Early-Stage Investment Insights Report: 2022’ further showed that total number of deals in 2021 went up by 30%, while average deal size went up 20% to $1.8 million in 2021 from $1.5 million in 2020.
Over 67% of the respondents surveyed by InnoVen said that they invested more last year against 2020, with a majority of investments being in $500,000 to $1 million range.
Valuations of seed deals continued to go up, with 56% of deals being done within a range of $5-10 million valuation, the report showed.
Respondents also said that they chose fintech, business-to-business (B2B) platforms and enterprise software-as-a-service (SaaS) as the top three sectors.
More than 30% of the startups funded in 2021 were at a pre-revenue stage, in comparison to 20-30% in 2020, according to the report.
Moreover, investors continued to bet on experienced founders, with 70% of founders having experience of five to ten years, the report showed.
The number of repeat founders also increased, with 29% of investors having more than 30% repeat founders in deals concluded in 2021, according to the report.
However, about 47% of the respondents said that they expect the funding activity to slow down this year, but they were bullish on sectors like Web3.0, healthtech, fintech, SaaS and creator economy, according to the report.
While most early-stage investors felt that emergence of angel syndicates has been positive for the overall ecosystem, the higher activity levels in seed stage by large established venture capital (VC) firms has increased competition and driven valuations higher, according to the report.
Statistics, according to the report, suggested that 47% of investors see investments slowing down in the early-stage startup ecosystem in 2022, while 49% said that the presence of tier-1 VCs’ accelerator programs resulted in increased competition and higher valuations.
“Early-stage investment activity has proven to be resilient in 2021 with bigger transaction sizes at higher valuations and an increase in the number of angel syndicates which are all clear indicators of a maturing early-stage ecosystem,” said Tarana Lalwani, Partner, InnoVen Capital India.
“Although the market sentiment shows muted hints of slowdown, however, we expect the early-stage funding environment to remain strong,” Lalwani added.
Further, about 75% of respondents believed that early-stage companies were over-valued in 2021, the report showed.
According to the report, about 50% investors had deal sizes between $500,000 and $1 million against 38% in 2020, while 56% investors invested at a valuation between $5 million and $10 million against 44% in 2020.
The report also showed Bengaluru and NCR (National Capital Region) continued to be the startup hubs and attracted over two thirds of all seed investments in 2021.
Family Offices and UHNIs (ultra-high-networth individuals) were the top sources for domestic capital into the VC ecosystem followed by fund of funds, the report showed.
According to the report, a majority of investors relied on domestic pool of capital as 29% have 100% domestic Limited Partners (LPs). Moreover, domestic capital has largely come from family offices or UHNIs, while 15% came from fund of funds like SIDBI.
