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Early-stage funding declines as investors look for revenue concepts, experienced founders

The proportion of founders in funded start-ups with at least five years of experience went up from 55 percent in 2017 to 78 percent this year

November 30, 2018 / 08:08 PM IST

Early stage investments in 2018, as at the end of October, stood at Rs 290 crore, much lower than the Rs 480 crore raised in all of 2017, as investors became cautious about putting money in start-ups that don't have a revenue concept as yet, venture debt firm Innoven Capital said in a report.

The average size of deals also fell to Rs 4.4 crore from Rs 5.8 crore in 2017, the firm said in its report titled 'Early Stage Investment Insights Report 2018'.

However, the number of deals struck was similar to last year -- 67 at the end of October 2018 versus 82 for all of 2017.

The report, which focuses on early stage funding activity in start-ups across angel and pre-series A investments, was developed by analyzing up-to-date market information, along and surveying 14 leading institutional early-stage investors.

While Bangalore and NCR continued to be the most prominent destinations for investments in start-ups, accounting for 28 percent and 25 percent, respectively, Mumbai saw a resurgence, finishing a close third at 23 percent as against a paltry 6 percent last year.

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Consumer, enterprise tech and artificial intelligence, healthcare and content emerged as the most active sectors. Investors believe that this trend will continue in 2019.

Investors also showed preference for backing more experienced founders. The proportion of founders in funded start-ups with at least five years of experience went up from 55 percent in 2017 to 78 percent this year.

Investors also said they look for companies with a clearly-identified large addressable market, some product-market fit and scalability. Around 70 percent of the companies that failed to obtain funding from institutional investors either had no product-market fit or were addressing a niche market opportunity.

While gender equality has become a topic of focus, the survey revealed that the number of start-ups with at least one female co-founder still remains low at 17 percent, compared to 20 percent in 2017.

"While 2018 has been a great year for the start-up ecosystem, with record funding and exits (courtesy Flipkart), the funding has been more concentrated in late stage companies and the early stage funding activity has been moderate, with slight decline over 2017," said Ashish Sharma, Chief Executive Officer, InnoVen Capital India.
Moneycontrol News
first published: Nov 30, 2018 12:16 pm

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