What do investors bet on during early stage funding? Survey reveals quality of founding team matters most

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NEW DELHI: What do investors bet on during early stage funding? Survey reveals quality of founding team matters most
With 316 deals, total early stage (Seed/Pre-series A) funding was 63% higher than 2020. Total number of deals went up by 30% while average deal size went up 20%.
Early-stage funding in India surged 63% in calendar year 2021, with investors pouring as much as $594 million into startups at seed and pre-Series A rounds across 316 deals, said a report by InnoVen Capital, one of Asia’s leading venture debt firm.
The ‘Early-Stage Investment Insights Report 2022’, outlined current trends in the early-stage (Seed/Pre-A) Indian start-up ecosystem and noted that the total number of deals in 2021 went up by 30%, while average deal size went up 20% to $1.8 million in 2021 from $1.5 million in 2020.

Over 67% of the early-stage investors surveyed invested more in 2021 when compared to 2020, while valuations continued to go up, with 56% of deals at $5-$10 million valuation.
Fintech, B2B platforms and SaaS were the most favored sectors last year. Over 47% of investors expect that the funding activity this year will see some slowdown. The sectors which investors are most interested in this year include Web3.0, HealthTech, FinTech, SaaS and Creator economy.
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% of funded start-ups comprising two co-founders.
Investors also prefer experienced founders, with 70% of founders having experience of five to ten years, the report showed.
The number of repeat founders also increased, with 29% of investors having more than 30% repeat founders in deals concluded in 2021.
71% of investors have backed new founders with the share of repeat founders lower than 30% in their portfolio.
Bangalore, NCR, and Mumbai continue to form the core of the start-up ecosystem. Over two-thirds of early-stage investments made by respondents were in companies that are headquartered in Bangalore or NCR.
The majority of the investors relied on the domestic pool of capital for their funds. In fact, 29% of them have 100% 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.
“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,” said Tarana Lalwani, Partner, InnoVen Capital India.

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