Seed and Series A investments rose 88% and 22%, respectively, in January-March over the same period in 2021, data from Venture Intelligence that was shared with ET showed.
This is significant at a time of a ‘funding winter’ that have slowed larger late stage deals.
Early-stage investments last year were up 75% over 2020, with around 250 companies raising Series A rounds against 143 companies, the data, which is part of the firm’s Series A landscape report, showed.
“In the early stage, founders are building companies that aim to be valuable over 3-4 years in the future. So, a correction today is largely unlikely to affect a founding team just getting started,” said Pranav Pai, founding partner, 3one4 Capital. “Tech companies have a gestation period, and now there is more capital available to provide this runway to these young companies. This is a good thing for India, and this ecosystem has been nurtured over 15 years now.”
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According to Pai, investments may reduce this year, but the amount could be higher than the trailing few years’ levels overall.
“We expect around $0.5-0.7 billion to enter the seed stage in 2022,” he added.
ETtechMarquee fund managers such as Sequoia India, , and Matrix, which have recently shored up a larger capital pool from investors, are gunning for early-stage deals.
According to the report, between 2018 and 2021, Sequoia Capital (88 deals) was the most active Seed to Series A investor in terms of number of deals, followed by Axilor Ventures (49), Accel India (48), 3one4 Capital (41) and Blume Ventures (39).
Sequoia recently said it had set aside more capital to invest in its Seed program Surge, and will look to write larger cheques of up to $3 million,
ET reported last week.
The report highlights how 2,863 companies raised Seed investments during the 2015-2021 period.
Around 18.2% of those companies (521 companies) progressed to the Series A round and 6.1% (174 companies) progressed to the Series B round, 2.7% (76 companies) went on to the Series C round, and 0.9% (25 companies) raised beyond Series C rounds.
From the 521 companies that raised Seed and Series A rounds during the 2015-2021 period, 174 companies (33.4%) went on to raise Series B rounds. Of the 174 companies, 76 (43.7%) went on to raise the Series C round, and 32.9% (25 companies) of those companies that raised a Series C round went beyond Series C, it showed.
ETtech“While capital tourism has declined, the impact of that is being felt much more on growth stage than early-stage investments,” said Ankur Pahwa, partner and national leader – ecommerce and consumer internet, EY India. “There is significant head room for business growth in startups given the adoption curve in India which also will reflect in a faster rebound in India vs other geographies.”
Technology and tech-enabled businesses contributed to over 76% of Series A investments in the 2015-2021 period.
Consumer-facing businesses (B2C), which accounted for 54% of Series A investments, were preferred over business-to-business (B2B) startups in the 2015-2021 period, data from Venture Intelligence showed.
According to the report, ecommerce was the most preferred sector for investments during the 2015-2021 period, followed by Software as a Service, fintech, healthcare (including health-tech), and food and beverages (including D2C brands).
“Early-stage deals are relatively more insulated than growth stage deals from movements in interest rates and public markets. Strong founding teams are continuing to start-up and top funds like Lightspeed, Accel, Sequoia are flush with funds — so the investment activity continues,” said Vaibhav Agarwal, partner, Lightspeed Venture Partners. “… founders and investors are more cautious now and are taking more time to get to know each other well.”
The strong and steady investment pace should continue for the rest of the year, he said.
“Deals are moving slower than last year but investors like us are open for business to strong teams and startups,” Agarwal added.
