Rising interest in early-stage investing – a boon or a bane for the Indian startup ecosystem?

Today, the Indian startup ecosystem is home to approximately 72993 DPIIT-recognized startups across 56 diverse industrial sectors. The startup ecosystem is undergoing a tremendous transformation with a massive number of startups, innovations, and valuations witnessing stark acceleration.Investor contributions so far have proved to be crucial to the success of startups across varying stages of growth, immensely increasing the scope of their value addition. In this scenario, it is important to highlight the highly commendable tenacity of early-stage investors in spotting and nurturing viable ventures, given the risk exposure associated with investing in startups, especially the early-stage ventures. This is because these are young organisations looking for critical high-risk capital while still testing and determining the most suitable product-market fit and scalable business models.

The startup ecosystem is funded by varied investors such as Incubators & Accelerators, Angels & Micro VCs, VC funds, PE funds, Family Offices (FOs), and High Net worth Individuals (HNIs), each focused on investing in specific stages of growth and sectors of their preference. While traditionally, retail investors with a long-term horizon mindsetexhibited the preference for the early-stage investments, the trend has started to change over the years. Today, the space is garnering increasing interest from established players in the late-stage investment space too, such as Accel, Sequoia and Tiger Global, etc. along with HNIs and FOs.

In today’s investing scenario, an increasing number of investors are recognizing the need to catch the potential companies at an early stage. In tandem with the trend that reflected the rising shift in focus in favor of early-stage investments through 2021 over 2020, the first quarter of 2022 also witnessed an increase of 88% and 22% for Seed and Series A investments respectively, compared to the same period in 2021 (Venture Intelligence Data). The early-stage investments in the second quarter of 2022 also doubled compared to the same period last year.

While the early-stage investments soared amidst what was touted to be a funding winter in 2022, the prospect of traditional players in the space may have looked abridged outwardly, as the early-stage investment landscape started to get crowded with additional players competing for a piece of the pie in search of potential ventures. However, the on-ground reality also has a different tale to tell.

India is a land of opportunities where startups are being founded at a CAGR of 17%. Currently, India is home to approximately 900 accelerators, 89+ MVCs, and close to 26k angel investors that participate in the early-stage investing space, and each of these hold an immense potential to both grow, and also support the exponential growth of future startups. With an increasing number of investors opting for opportunities in early-stage ventures, the Indian startup ecosystem is further being equipped in nurturing a robust pipeline of viable early-stage ventures.

With the immense growth in the number of active startups across the country, the occurrences of subsequent funding rounds by startups are also on a rising path. Some Pivotal deals which concluded this year that had the next round of funding included BrowserStack ($200 million in Series B), Apna ($70 million in Series B), Purplle ($ 45 million in Series D) and AdOnMo ($14.9 million in Series A).

With increasing access to fresh and innovative talent, lucrative markets besotted with encouraging government policies and injection of capital by reputable corporates, this early-stage cycle of investment in the startup ecosystem has become a promising opportunity for both the domestic and global investor circuit. The increasing investor interest in India’s startups ecosystem is in turn powering the influx of novel ideas and vice-versa, furthering the bar of quality, growth, revenue as well as lowering the apparent risks on investment.


(The author is Ms. Nandini Mansinghka, Co-Founder & CEO of Mumbai Angels, and the views expressed in this article are her own)

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