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ETSA 2021: Early-stage deal flow remains robust despite market volatility

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Despite the fall in tech firms’ valuations worldwide since the start of 2022, deal flow for early-stage startups continues to be robust.

Several top-tier venture capital funds have shifted their focus towards early-stage investing and trying to catch companies early.

Accel recently set up a $650 million fund that will focus on early-stage investments. Sequoia has also been focusing on early-stage startups with the launch of its seed accelerator program Surge.

Piyush Goyal, Union minister for commerce and industry said at the ET Startup Awards in Bengaluru on March 12, “To my mind the funding shouldn’t go into Series B, C or D rounds, it should rather go to tier 2 or 3 cities as seed funding.”

The awards saw policymakers come together with the biggest names in startups to discuss the future of early-stage investing in homegrown startups amid the current market volatility.

“It is very hard to predict where the market will be in the next 10 years but there should not be any reduction in early-stage investing. Investors have to pick great founders and work with them to build iconic companies,” said Shekhar Kirani, partner at Accel India.

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Kirani said that the whole startup landscape has changed in 2022, pushing several big investors to focus on early-stage funding.

“There are more extraordinary startups today. The quality of founders has significantly improved, the quality of ideas have significantly improved and the way founders build startups and create value for consumers has improved a lot,” he said.

Investors also spoke about changing trends and changing the proportion of round sizes for early-stage investing. The IPO rush in 2021 along with several policy changes have accelerated early-stage investments.

“While the pandemic has slowed things down, some policy changes and listing of companies have given a boost to early-stage investors,” said Anil Joshi, Unicorn India Ventures.

Investors see digitization and crypto as the hottest sectors to invest in this year. “As a fund, we see few sectors that are quite prominent… the space around digitization and crypto and NFTs (non-fungible tokens), for instance,” said Unicorn Venture Capital’s Joshi.

Accel has been focused on five broad themes and will continue to focus on them in 2022, Kirani said. “Consumer companies, B2B Companies, marketplaces, global SaaS, fintech and digital health tech will be at the center of many disruptions,” said Kirani.

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