Early stage funding more than doubled to Rs 6,930 mn in 2019: InnoVen Capital report

Early stage funding more than doubled to Rs 6,930 million in 2019 compared to Rs 3340 million in 2018. According to a report by InnoVen Capital, the surge in funding was driven by a 22% increase in number of deals and a 70% increase in deal size.

Bengaluru, NCR and Mumbai formed the core of the startup ecosystem with Bengaluru having a 37% share, NCR 29% and Mumbai 20%, close to 2018 levels.

The ‘Early Stage Investment Insights Report 2019’, focuses on early stage investment activity across angel and pre-series A stage and was developed by analyzing market information, along with a survey with 18 leading institutional early stage investors.

The report also highlighted that investors continue to show preference of backing more experienced founders, with proportion of founders with at least 5 years of experience going up from 55% in 2017 to 82% this year.

Consumer Internet, Enterprise Tech/AI, Fintech and EdTech emerged as the most active sectors for early stage investors.

However, the survey revealed that number of startups with at least one female co-founder went down in 2019 to 12% as against 17% in 2018.

As per the report, investors believe that this trend will continue but indicated that they would like to do more in Enterprise Tech & AI and FinTech in 2020.

The study found that almost 50% of early stage investors felt that the valuations in 2019 were on the higher side due to intense competition for quality deals. However, majority (56%) foresee some correction in the valuations in 2020.

The report revealed that investors are more open to funding startups in pre-revenue stage, which is reflected in the share of pre-revenue funded start-ups increasing to 17% this year from 12% in 2018. This trend is driven by concept stage ventures launched by second time entrepreneurs and experienced first-time operators.

Investors mentioned that when evaluating companies, they look for a clearly identified large addressable market, some product-market fit and scalability. 78% of the companies that failed to obtain funding from Institutional investors either had no product-market fit or were addressing a niche market opportunity. The survey also highlighted that investors have a preference for startups with more than one founder, with 89% of funded start-ups having two co-founders. The two most important qualities that investors look for in founders are vision and prior experience or background.