While the larger funding environment still remains gloomy, funding by angel investors seems to be picking up. The January-February period has seen 62 angel rounds investing about $30 million, data from Private Circle showed. For comparison, November and December had recorded only 23 rounds of angel investments with a total of $7.2 million.
The data includes funding rounds in which the participation by angel investors is exclusive and excludes fresh or follow-on rounds that had mixed participation from angels, venture capitalists or corporate venture funds.
Although 2023 had gotten off to a good start with January-February seeing about 130 angel rounds, interest tapered off through the year, as the funding winter set it. The dip in angel investments was in line with the decline in the larger funding environment. The number of private equity and venture capital deals fell by 33% in 2023, primarily driven by a substantial decline of 42% in the startups segment, an analysis by EY found.
Neeraj Tyagi, co-founder and CEO, We Founder Circle, believes things are certainly looking very positive this year. “There has been a lot of action in the last two months, both in early stage as well as in Series A and B,” Tyagi pointed out. The fund has made six investments so far this year, while four of its growth-stage startups were able to close their funding rounds during this time.
Karan Verma, co-founder and director, FaaD Network, noted there are opportunities emerging in the market. “Investors are nevertheless adopting a more cautious approach, focusing on strong fundamentals and risk mitigation strategies in startups,” Verma opined.
“It’s about curating startups well, giving them a reasonable valuation while not getting carried away with the fear of missing out and investing in good founders with fundamentally strong business, instead of going for disruptive technologies where monetisation could be a challenge,” said Mitesh Shah, co-founder of Inflection Point Ventures. He noted that their investment activity has maintained a steady pace driven by strong macro economic trends, favourable government policies and the public market rally.
However, We Founder Circle’s Tyagi added that this shift in trend was expected since most VCs have raised money for their funds last year and were not utilising them so far. “With a lot of dry powder available, it was expected that at some point the tide will change and the money that these VCs have already raised, they will start deploying.”
VC funds usually have an investment horizon of 8-10 years, which gives the fund managers limited time to invest in companies, manage the portfolio and make a sizable return. The later the deployment, the more difficult it becomes for the manager to build a favourable portfolio.