55% investors felt early stage startups were overvalued in 2022 : InnoVen Capital Report

tech-funding

Around 55 percent of the institutional investors in the seed & pre-series A stage surveyed believe that early-stage companies were overvalued in 2022, a report by venture debt firm InnoVen Capital said, as early-stage investing skyrocketed last year amidst funding winter.

2022 was also a major year for fundraising by domestic and global venture capital firms to invest in early-stage startups across India and Southeast Asia. These include Sequoia Capital’s $2.85 billion fundraising, Elevation Capital’s $670 million round, Accel Partners $650 million round, B Capital’s $250 million round and Lightspeed Ventures’ $500 million round to name a few. But the wider deployment of most of these funds is yet to be seen as investors became wary of valuations, ability to turn profitable and governance issues.

According to the report, about 50 percent of investors expect a slower funding environment in 2023 while 30 expect it to be flat.

While the top segments to attract early-stage funding were B2B platforms, fintech and enterprise SaaS; this year it’s going to climate-tech along with fintech and SaaS.

Interestingly, most of the early-stage funding activity happened in the pre-revenue startups, as investors chose the founding team as the most important factor given the limited track record available for these startups, the report said.

Tarana Lalwani, Partner at InnoVen Capital India said, “As we head into 2023, we anticipate the slowdown that began in 2022 to persist. However, we expect the early-stage environment to maintain its momentum, with an increased focus on governance and a more extensive due diligence process - which will see more viable and sustainable business models getting funded.”

In 2022, Bangalore, NCR and Mumbai continued to form the core of the start-up ecosystem, while over two-thirds of early-stage start-up investments done were from Bangalore or NCR.

“Majority of the respondents (Funds) have relied on the domestic pool of capital to raise funds. Twenty percent of respondents have 100 percent domestic Limited Partners (LPs). Family Offices and UHNIs are the top source for domestic capital followed by fund of funds like SIDBI,” the report said.