Early-stage investments, also known as an angel or pre-series A investments, in Indian start-ups doubled in 2019, to Rs 693 crore as compared to Rs 334 crore in 2018, according to Early Stage Investment Insights Report 2019 by venture debt firm InnoVen.
The InnoVen report — prepared after analysing market information, along with a survey of 18 leading institutional early-stage investors — there was 22 per cent increase in the number of deals, whereas the average deal size grew to Rs 7.5 crore this year when compared to Rs 4.4 crore in the previous year.
Bengaluru saw the maximum number of early-stage investments in India this year with 37 per cent share, followed by Mumbai (20 per cent), the report says. Investments in start-ups based in Delhi-NCR spiked to 29 per cent in 2019 from 17 per cent last year.
Consumer Internet, enterprise tech & artificial intelligence (AI), fintech and edtech emerged as the most active sectors for early-stage investors. Investors believe that this trend will continue, but indicated that they would like to do more in enterprise tech & AI, and fintech in 2020.
Almost 50 per cent of early-stage investors felt that the valuations in 2019 were on the higher side due to intense competition for quality deals. However, a majority (56 per cent) foresee some correction in valuations in 2020, the report revealed.
The investors, says the report, were more keen on funding at the pre-revenue stage, and also those start-ups backed by accomplished founders with a minimum of five years of experience. The funding in start-ups owned by seasoned entrepreneurs grew 82 per cent this year, from 55 per cent in 2017.
Investments also grew for start-ups that had a well-defined market with a niche product and scalability prospects. About 78 per cent of enterprises that failed to secure angel funding either had no product-market fit or had limited market opportunity.
A majority of the start-ups that secured funding had more than one founders; however, the number of companies with at least one female co-founder went down to 12 per cent in 2019 from 17 per cent last year.
“By collaborating with some of the most prominent early-stage institutional investors in India, we are happy to announce the release of our third edition of the report. Early-stage investment activity has been very robust this year, with increased deal flow, bigger transaction sizes and higher valuations. The competitive intensity in early stage has gone up, with a large set of institutional and angel investors looking to find the right opportunities,” said Ashish Sharma, CEO, InnoVen Capital India.