Early-stage investments in Indian startups continued to rise in value even as the number of deals fell, indicating increased investor appetite to write larger cheques—but for only select companies.
For the six months ended 30 June, seed, or very early, and Series A investments collectively climbed 23% to $505 million, from $411 million in the same period last year, showed data from Venture Intelligence. The number of deals however fell from 177 to 167, marking the fourth straight year of decline in early-stage deal volumes.
“The ecosystem has many more players today like angel networks and single person venture funds/groups of angels combining to raise ₹1-2.5 crore that has delayed the 1st institutional “seed” cheque for many startups,” said Anup Jain, managing partner, Orios Venture Partners, an early-stage investor, explaining the drop in early-stage deal volumes.
The concentrated deal-making comes at a time when most of India’s top venture capital funds—Sequoia, Accel, Matrix, and Nexus Venture Partners—continue to focus on the seed stage as they seek to invest early in firms, which gives them the time to grow the business and reduce exit pressure.
“In the last few years, venture capitalists (VCs) have realized that there is more merit in being both focused and optimal, rather than spraying and praying. Knowing that few entrepreneurs will eventually succeed, VCs are willing to write larger individual cheques,” said Sunil Goyal, managing director, Yournest Venture Capital, a pre-Series A fund focused on deep-technology—software and internet-of-things-based startups.
Even traditional heavyweights—late stage investors such as South Africa’s Naspers and Chinese internet giant Alibaba—have been looking at more early-stage deals in India through Naspers Ventures and BAce Capital, respectively.
Pranav Pai, founding partner of early-stage firm 3one4 Capital, said the rise in early-stage investment reflects a global trend of more capital being allocated to this stage. “We are also seeing a lot more experienced founders—some starting their second or third companies. They tend to attract more investors for larger early rounds,” he said.
An example of this trend is Freecharge founder Kunal Shah’s second outing—which incentivises credit card payments with reward points—raising $30 million in seed round led by Sequoia Capital last November.
Ashish Kashyap, founder of travel company Ibibo Group, which was acquired by its larger peer, the Nasdaq-listed MakeMyTrip, also started a wealth management platform IndWealth last October, securing a seed round of $30 million from hedge fund Steadview Capital.
This article was first published on livemint.com.