Investor’s New Strategy in the New Era
Investors have played a huge role in the development of the start-up ecosystem. Irrespective of entrepreneurs’ capability and government support, the start-up ecosystem has not reached this level without the interest and trust of investors. Investments in start-ups have been growing constantly over the years and reached $6.4 billion in 2019. Though it dropped in 2020 due to the COVID-19 impact is expected to do much better than earlier in coming years.
Investors have evolved over the years in their approach towards start-ups. They have not only turned aggressive but also smart and cautious while choosing a particular start-up for funding. COVID-19 has substantially impacted the strategy of the investors and that strategy is clearly visible in the 2020 investment moves.
- Focus on Newer Start-ups: Newer start-ups have always attracted investors but the interest towards them has increased significantly during the pandemic. The impactful solutions built by newer start-ups have raised investors’ eyeballs and diverted their attention. The share of first-time funded start-ups among total unique funded start-ups has increased to 42% in 2020, it was 29% in 2019. Increased share of start-ups raising their first-round reflects the depth in the Indian start-up ecosystem. The impact of COVID-19 on investments are clearly visible with investors betting on sectors that were positively impacted by pandemic
- Rising Ticket Size of Investments: Ticket size can be linked with the availability of risk capital with the investors but it can also be linked with investors’ confidence in the India opportunity. Ticket size has increased substantially for all funding stages in 2020 especially in the seed and late stage. A more than 150% rise in median ticket size is observed in the seed stage funding from H12019 to H2 2020. Similarly, for late-stage funding median ticket size reached $32.6 mn in H2 2020 from the low of $11.4 in H1 2020. This trend also reflects that investors are turning picky in choosing a start-up and are willing to pump in more money into established and mature start-ups.
The focus of the investors is shifting towards more innovative and scalable start-ups. Such start-ups not only offer a better return in the future but offer sustainable growth over the years. The above moves might be the outcome of the pandemic or it could be a long-time planned thing but whatever it is, these moves will definitely make start-ups think about their future strategy for funding raising.
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