Even as the number of deals went up by 30%, the average deal size went up 20%, the sixth edition of its ‘Early-Stage Investment Insights Report 2022’ showed.
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.
Funds such as 3one4 Capital, Blume Ventures, First Cheque Ventures, Indian Angel Network, India Quotient, Inflection Point Ventures, Kae Capital, Mumbai Angels, Omnivore, Orios Venture Partners, Stanford Angels, Sauce.vc, Aureolis Capital, Leo Capital, WaterBridge Ventures, Prophetic Ventures, Incubate Fund, Good Capital, Gemba Capital and YourNest Capital participated in the survey.
Investments worth $594 million were put into early-stage companies in 2021.
Over 67% of the respondents surveyed invested more in 2021 than in 2020.
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According to the report, most of these investments were in the $500,000-$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,” it said in a statement.
While fintech, business-to-business (or B2B) platforms and enterprise Software as a Service (SaaS) emerged as the top three sectors of capital infusion in 2021, more than 30% of the startups funded last year were at a pre-revenue stage, in comparison to 20-30% in 2020, highlighting the maturity of businesses.
“Investors continue to bet on experienced founders, with 70% of founders having 5-10 years of experience. The number of repeat founders also increased, with 29% of investors having more than 30% of repeat founders in deals concluded in 2021,” it said.
Concerns over a funding winter are real with 47% of investors expecting deal activity to slow down this year.
Interestingly, most early-stage investors feel that emergence of angel syndicates has been positive for the overall ecosystem.
“However, the higher activity levels in seed stage by large established VCs has increased competition and driven valuations higher,” the report highlighted.
Most of the investors relied on the domestic pool of capital for their funds. In fact,
29% of them have 100% domestic Limited Partners (LP’s). Family offices and Ultra High Net-worth Individuals are the top sources of domestic capital in the VC ecosystem followed by funds of funds like SIDBI, it said.
“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, we expect the early-stage funding environment to remain strong.”
