Volumes in private equity (PE) & venture capitalists (VC) investments in 2015 have touched an all-time high with close to 1,049 deals largely due to increase in investments in India’s start-ups, according to the fourth edition of Grant Thornton’s The Fourth Wheel 2016 report. According to the report, over 600 investments of the total PE/ VC investment volume has been made in start-ups. This reflects the increased interest of PE/ VC firms in the Indian start-up ecosystem.
The report which focuses on PE/VC industry in India has been produced in association with IVCA, an organisation that works towards promotion of PE/VC firms.
When it comes to the value of PE investments in 2015, the report says that the year witnessed an increase in big ticket deals valued over $500 million each. This is an evidence of a promising business environment that has the potential to attract big investments. However, the level of PE investments is yet to match the big ticket investment levels in 2007. 2015 attracted 194 investments valued at $10 million and above, a growth of 15 percent from the previous year. This was primarily across sectors such as BSFI, infrastructure, real estate, manufacturing, pharma, energy and retail along with upcoming e-commerce companies.
While there has been a huge increase in the total deal volume and value in 2015, the average deal size has come down from around $20 million to $15 million on the back of investments in start-ups. These investments are relatively smaller in size. The report says that IT and ITeS sector has been the main driver for growth in 2015 (38 percent growth year-on-year,) on the back of impressive level of interest in start-ups in e-commerce space. This interest in start-ups enabled the sector to reach a 10 year peak level of investment value ($7 billion).
“For a robust market we need both the ends firing i.e. the start-up end which funnels new thoughts/ideas and helps generate new businesses and an active IPO market where funds which have invested can exit through listing. Indian PE space was suffering because of the lack of adequate activity in both these ends. However, we have seen both these correct in 2015 which is good news for the industry,” says Harish HV, Partner, Grant Thornton India LLP.
While, angel investors are leading the investments in start-ups, followed by PEs setting up start-up focussed funds, an interesting trend that is emerging is the corporates and multinational companies setting up funds to invest in smaller start-ups and marquee entrepreneurs making investments in their personal capacity. Looking at the present scenario there is enough funds to be deployed, but the challenge still remains to identify an attractive investment opportunity.