InnoVen Capital, Asia’s leading venture debt firm, released the 7th edition of the ‘Early-Stage Investment Insights Report’, outlining current trends in the early-stage (Seed/Pre-A) Indian start-up ecosystem. The report focuses on investment activity across seed & pre-series A stage, by analysing market information, along with a survey conducted with 20 leading institutional early-stage investors.
2022 started with a strongly building on from the momentum of 2021, but things slowed down considerably during the second half of the year. In 2022, only 20% of the survey respondents reported an increase in the quantum of their investments as compared to 2021. Almost 40% of investors reported a decrease in the number of deals they closed. Despite the slowdown, valuations for seed/Pre-A rounds remained at a similar level to 2021, with half the deals at a $5 – $10 MM valuation range and 20% above $10 MM valuation.
Respondents chose B2B platforms, Fintech, and Enterprise SaaS as the top 3 sectors they invested in 2022. 60% of investors had over a third of their new investments at a pre-revenue stage, which demonstrates that top-notch founding teams with an idea can raise capital.
In 2023, most investors (57%) anticipate a further slowdown in the funding activity given the weak macro. Investors chose FinTech, Enterprise SaaS and Climate-Tech as the top 3 sectors of focus this year.
Only a third of early-stage respondents (35%) feel that emergence of Angel syndicates has been positive for the overall eco-system. Most believe that angel syndicates have led to many founders skipping institutional seed rounds, crashing of deal/diligence timelines and a higher entry valuation. Respondents also highlighted that higher activity levels in seed stage by large established VCs (including Tier-1 VC seed programs) have driven up valuations and blurred the lines between Seed and Series A. While evaluating new deals, investors overwhelmingly chose the quality of the founding team as the most important factor as there isn’t much traction or track record to evaluate at early-stage.
Bangalore, NCR and Mumbai continue to form the core of the start-up eco-system. Over two thirds of early-stage investments made by respondents were in companies that are headquartered in Bangalore or NCR. There has been Increasing activity in Hyderabad, Pune, and Chennai, with all three seeing 5% of the total early-stage deal flow individually.
Majority of the respondents (Funds) have relied on domestic pool of capital to raise funds. 20% of respondents have 100% domestic Limited Partners (LP’s). Family Offices and UHNIs are the top source for domestic capital followed by fund of funds like SIDBI.
Commenting on the findings, Tarana Lalwani, Partner, InnoVen Capital India said, “As we head into 2023, we anticipate the slowdown that began in 2022 to persist. However, we expect the early-stage environment to maintain its momentum, with an increased focus on governance and more extensive due diligence process – which will see more viable and sustainable business models getting funded”.
About the Report
The ‘Early-Stage Investment Insights Report 2023’ provides analysis and trends on pre-series A/Seed investment activity. The report has been prepared by InnoVen Capital with inputs from reputed early-stage institutional investors. The following investors participated in this edition of the report: Blume, Waterbridge Ventures, India Quotient, Kae Capital, Better Capital, Omnivore, YourNest, Eximus Ventures, India Angel Networks, Inflection Point Ventures, Leo Capital, White Venture Capital, Good Capital, WEH Ventures, Escape Velocity Accelerator, First Cheque, All In, Aureolis, Equanimity, Sauce.VC
Full edition of this Report can be read here
The 2022 edition of the Report can be read here
About InnoVen Capital
InnoVen Capital is Asia’s leading venture debt firm with offices in India, China and Singapore. It provides debt capital to high growth ventures. Started in 2008 as the first dedicated venture debt provider in India, the platform offers multiple debt capital solutions, including venture debt, acquisition finance, growth loans, working capital etc.
To date, InnoVen Capital India has completed over 300 transactions with more than 200 start- ups, including 35+ unicorns like Swiggy, Byjus, boAt, Dailyhunt, Licious, Ofbusiness Eruditus, Infra.Market, Pharmeasy, Xpressbees, Shiprocket, Elasticrun, Oyo Rooms, CureFit, Udaan, Zetwerk, Moglix, Firstcry, Mensa Brands, Blackbuck, Rebel Foods, BharatPe, Cars24, Spinny, Slice, Vedantu, Dealshare and many more.