Mumbai: The average ticket size of seed, or pre-Series A, rounds is at an all-time high so far in 2018, despite there having been a decline in the total investment amount and the number of deals. This signals that investors are willing to go deeper but in fewer start-ups.
The average investment size of seed rounds was at $0.88 million, the highest ever, and 25% higher than 2017, according to data sourced from Tracxn Technologies. The number of deals, however, fell from 523 to 265, or almost 50%, with three months to go.
The trend reflects a maturity in the ecosystem, cost increases and increased faith in founders, according to investors. “The ecosystem is far more mature, with investors recognizing great founders and realizing that great founders also need bigger investments,” said Anup Jain, managing partner, Orios Venture Partners, an early-stage investor. “The demand for good quality technology is very high and the supply is not keeping up, leading to higher costs.”
Investors have become more cautious after burning their fingers with investments not paying off earlier, thus the fewer seed deals, said Sanjay Nath, managing partner at early-stage investor Blume Ventures.
“We are moving to a more thoughtful phase. The year 2013-14 was a period of overinvesting and a lot of people got burnt. The system is healthier now.” The learnings from 2013-14 meant that investors are looking to back fewer companies with larger cheques.
“In the 2014 funding boom, most companies eventually did nothing. So firms decided that instead of investing in 30-40 companies, we will invest in the 10-15 that we know well and invest more there,” said Anirudh Damani, managing partner, Artha Venture Fund. Start-ups have also witnessed rising interest from family offices, such as Azim Premji-owned PremjiInvest and Narayana Murthy’s Catamaran Ventures. “Most of these family offices want to sink their teeth deeper and make bigger bets. They are not interested in small ticket sizes,” Damani said.
The average Series A round this year was at $5.4 million, the highest in three years, according to the Tracxn data. “Funding takes three to six months away from business and then you don’t have results to show because you are back in the funding market so early. So, you might as well raise large funds in one go,” said Damani.
Though the number of Series A rounds have been on a decline for the last four years, this year the slide has been relatively less.
While there is still time for investments to catch up with three months remaining, Damani said that Series A investors have been watching and waiting for a while, exercising caution for better opportunities.
To be sure, investors feel that the fall in seed funding rounds this year may be an exception and not the rule.
“While ticket sizes should continue going up, I think the number of investments will go up as well, because numbers have never been a problem for India. I think there is far too much capacity and far too many opportunities in such a big market,” said Nath of Blume Ventures.