Indian startups continue to draw early-stage (Seed/Pre-series A) investment with a strong momentum despite the temporary halt due to the pandemic.
The quantum of early-stage funding pumped into Indian startups went up by 6 percent to $279 million in 2020, according to a report by InnoVen Capital. The study surveyed 16 leading institutional early-stage investors to track equity investment activity across Seed & pre-series A stages. Blume Ventures, 3one4 Capital, Titan Capital, Sauce.vc, Waterbridge Ventures, Indian Angel Network, Kae Capital and Orios Venture Partners were among the investors who participated in the survey.
As expected, investors closed fewer deals last year. The number of early-stage funding deals fell from 205 in 2019 to 178 in 2020.
So, the surge in quantum of seed funding is largely attributed to the rise in the average deal size, which has gone up by 23 percent to $1.6 million. This shows that investors may have been picky, but not altogether averse to investing heartily in startups with potential. Startups in the EdTech, B2B platforms and consumer tech were the top draws last year.
In 2020, investors turned cautious after the pandemic-led lockdown hurt startups across sectors. As the lockdown disrupted revenue streams and upended earlier projections, investors closed the money tap. In the first half of 2020, startup funding deals fell over 30 percent to 272 transactions, according to Venture Intelligence.
However, 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, said Tarana Lalwani, Senior Director, InnoVen Capital India.
Last year, valuations of early-stage startups went up due to intense competition for high-quality deals and the entry of large established venture capital firms. At least 50 percent of the seed funding deals were valued at over $5 million.
Investors preferred placing their money in startups with experienced founders or multiple founders. In addition, investors were able to help nearly 50 percent of their portfolio companies raise a follow-on round.
For 2021, the outlook for early-stage startups looks bright as investors expect the current rate of funding to sustain. This year, the top sectors attracting investor attention include Enterprise SaaS, HealthTech, FinTech and EdTech.