Risk capital investors have reasons to cheer.
Amid concerns of a severe slowdown in India, private equity and venture capital firms raised a whopping $5.1 billion from limited partners (LPs) in 2019, recording an almost 81 per cent jump from 2018, according to data available with research firm Venture Intelligence.
In 2018, PE and VC firms raised $2.82 billion. In terms of number, as many as 30 funds were raised last year against 34 in 2018 that goes on to signal how fund sizes have been bigger as well in 2019.
Edelweiss Group raised the largest vehicle in 2019 at $1.3 billion to invest in stressed assets across India. Categorised as India’s largest bad loan buyer, Edelweiss raised capital from marquee global investors, besides pension funds and high net worth individuals (HNIs) in India and abroad.
Other fund managers who made headlines for raising capital in 2019 include homegrown giant ChrysCapital, Multiples PE (led by former ICICI Venture veteran Renuka Ramnath), and American venture capitalist Accel India. Creador, a Malaysia-headquartered regional PE firm, closed its fourth fund to invest in India and Southeast Asia.
“This indicates that global interest towards Asia and in particular in India is certainly active and India is viewed as a market with immense growth potential,” said Girish Vanvari, founder at Transaction Square. “It’s a paradox situation, wherein at one end there are reports of a slowdown and at the same time there are reports of big private equity players raising funds targeting deals in India,” added Vanvari.
Of the total funds raised last year, VCs constituted $1.96 billion signaling growing investor interest in the country’s startup ecosystem.
“Fundraising is going on as usual,” said venture capitalist and former Infosys executive Mohandas Pai. “The year ahead is promising. Even as the dry powder in the market is estimated to be around $2-3 billion…funds could raise more as they can make calls,” he added.
The challenge, however, revolves around the “management ability of startups to grow, building teams, investing adequately for the future. High growth creates its own stress. The opportunity is unmet demand in the market and high growth,” said Pai.
Opportunities in India can currently be categorised in diverse segments. The first comprises established companies with stable cash flows. “These companies are darlings of PE firms wherein we are seeing total promoter exits,” said Vanvari, citing examples of giants such as Essel Propack, NIIT, Indiabulls Real Estate, GSK Consumer Healthcare, and Heinz, among others.
The second category captures the likes of ‘new-age growth companies’ such as Ola, Licious and Swiggy, which are seeing increased VC interest.
The third category features the growing number of cases under the Insolvency and Bankruptcy Code (IBC) that are gaining steam. This perhaps explains the much-talked-about $613-million acquisition of Ruchi Soya by Patanjali Ayurved in November 2019 that went on to become the largest deal of the month.
And finally, there is the traditional category, which is awaiting to see a few ‘big deals’. This primarily includes sectors such as infrastructure and energy, where regulations play a significant role. Deals (that are stressed) will see the light of the day but may take time.
“In terms of traditional PE activity, investors “will have an active pipeline across distress situations from domestic groups, which will see the sale of crown jewels of companies or division sales. Going forward, traditional growth capital PEs are expected to focus on liquid instruments such as pre-IPO and PIPE deals,” said Gopal Agrawal, co-head, investment banking at Edelweiss.
In terms of PE and VC funding, there has been a 56 per cent jump in deal value in 2019 despite a marginal 2 per cent increase in deal volumes, according to a report published by Grant Thornton. Between January and November 2019, PE and VC firms invested as much as $31,303 million as against $18,493 million invested in the same period in 2018.