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InnoVen Capital: Early-Stage Investment Insights Report 2022

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InnoVen Capital, an Asian venture debt firm, released the 6th edition of the ‘Early-Stage Investment Insights Report 2022’, outlining current trends in the early-stage (Seed/Pre-A) Indian startup ecosystem. 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.

 2021 saw a strong funding environment with $594 MM of investments in early-stage companies. Respondents chose fintech, B2B platforms, and enterprise SaaS as the top three sectors where they invested in 2021. More than 30 per cent of the startups funded in 2021 were at the pre-revenue stage, which demonstrates the ability of great founding teams to raise seed capital at a concept or early traction stage.

 Over 67 per cent of respondents invested more in 2021 compared to 2020, with the majority of deals in the US$ 500K- US$ one million range. Valuations of seed/Pre-A rounds continue to go up, with 56 per cent of deals being done at over US$ five million valuation. However, the majority of investors (47 per cent) expect the funding activity to see some slowdown this year. In 2022, investors indicated SaaS, Web 3.0, fintech, health-tech and creator economy as areas of interest.

 Most early-stage investors (52 per cent) feel that the emergence of Angel Syndicates has been positive for the overall ecosystem. However, they believe that higher activity levels in the seed stage by large established VCs and Tier-1 VC seed programs have increased competition and driven valuations higher.

 Investors chose the quality of the founding team as the most important factor they focus on while evaluating deals, followed by the attractiveness of the sector. The survey also highlighted investors having a high preference for more than one founder, with 76 per cent of funded startups comprising two co-founders.

 The majority of the investors relied on the domestic pool of capital for their funds. In fact, 29 per cent of them have 100 per cent domestic Limited Partners (LP’s). Family Offices and UHNIs are the top sources of domestic capital in the VC ecosystem followed by funds of funds like SIDBI.

 Commenting on the findings, Tarana Lalwani, Partner, InnoVen Capital India said, “We are pleased to release the sixth edition of this report. 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. Although the market sentiment shows muted hints of slowdown, however, we expect the early-stage funding environment to remain strong. At InnoVen we continue to be optimistic and look forward to engaging with founders and investors.”

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