Parul
Investments from private equity and venture capital funds into domestic companies declined about 40 per cent to USD 27.9 billion so far this year, while the outflow increased marginally to USD 19.34 billion year-on-year. According to the numbers collated by Venture Intelligence that tracks private capital and debt flows, and industry body IVCA, investments by private equity and venture capital funds as of December 20, 2023, fell to a low of USD 27.9 billion across 697 transactions, as against USD 47.62 billion inflows in 2022 across 1,364 deals.
The year also saw more money being pulled out from the country by private equity players with overall exits touching USD 19.34 billion from 248 companies as against 233 exists worth USD 18.45 billion in 2022, according to the data.
Industry watchers, however, said green shoots of more funding is very much visible in the coming year.
The funding slowdown this year is a temporary adjustment, and as we move forward, we expect renewed and robust inflows, said Rajat Tandon, president of IVCA (Indian Private Equity and Venture Capitalist Association).
He said the ongoing green shoots of funding indicates an opportune time for venture capitalists, domestic private equity and private capital firms to create pools of capital to cash in on emerging opportunities in the domestic startup ecosystem, which demonstrates resilience in the face of challenges, offer innovative solutions to current market needs, and possess the potential for sustainable growth.
According to Tondon, the decline in investments this year mirrors the trend of larger but fewer investments, indicating a focus on projects and businesses that have the potential to create substantial value and foster sustainable growth.
The top five investments of 2023
TPG Capital and Temasek pumping in USD 2.4 billion into Manipal Hospitals in April,
HDFC Credila (the education loans arm of the now defunct HDFC right before its merger with HDFC Bank) being snapped up by Baring Asia and ChrysCapital for USD 1.35 billion in June;
Qatar Investment Authority pumping in USD 1 billion into Reliance Retail Ventures in August;
the renewable player Avaada Ventures getting USD 1 billion from Brookfield in April; and
Fertility clinic Indira IVF Clinics getting USD 732 million from Baring Asia in July.
Venture Intelligence said the fall in volumes is a strategic refinement and suggests a strategic approach to investment, focusing on quality and sustainability along with optimizing opportunities and ensuring a more discerning selection process for long-term value creation.
The investments were led by sectors such as the healthcare and life sciences which saw 30.2 per cent higher inflow compared to last year, energy (14.5 per cent), retail (98.8 per cent) and advertising & marketing which received inflows nearly double (199.8 per cent) than last year.
In contrast, sectors that saw deepening funding winter included players in the IT & ITES sector receiving 64.5 per cent less than what they got in 2022. While BFSI (Banking, Financial Services and Insurance) sector got 47.6 per cent less this year, funding in manufacturing went down by 43 per cent, while in engineering & construction lowered by 64 per cent.
Also, shipping & logistics witnessed a fall of 60.6 per cent, inflow in education lowered by 78.4 per cent. It declined by 48.5 per cent in FMCG and fell 80.9 per cent in agri business, dipped 70.4 per cent in food & beverages, and decreased by 83.6 per cent in telecom.
The top five PE exists in the year
Tiger Global and Accel India selling their holdings in e-commerce major Flipkart to its parent Walmart for USD 1.78 billion in July;
Lenskart investors Chiratae Ventures, PremjiInvest, Unilazer Ventures, Steadview Capital, TR Capital, Kris Gopalakrishnan, and Epiq Capital paring their holdings to the Abu Dhabi Investment Authority for USD 410 million in March;
Non-banking lender DMI Finance getting USD 167 million from Japanese banking major MUFG Bank by acquiring stakes from the Burman Family Office, New Investment Solutions, and NXC Corp in April;
Personal care brand Mamaearth investors Sofina, Stellaris Venture Partners, Fireside Ventures, and Sharp Ventures selling their stakes in a public issue for USD 133 million in October; and
Shadow bank Veritas Finance getting USD 97 million from Multiples PE in July which bought stakes in British International Investment and Lok Capital.
The year also saw VCs withdrawing USD 3.5 billion through 79 exits in 2023 as against the outflow of USD 3.1 billion from 113 companies a year ago.
The top five VC exits through strategic/secondary sales were from Flipkart (USD 1.78 billion), Lenskart (USD 410 million), DMI Finance (USD 167 million), Mamaearth (USD 133 million vial IPO) and Veritas Finance (USD 97 million).
2023 saw just two Unicorn companies (VC-funded startups valued at $1 Billion or more) being created, compared to 21 in 2022 (and a record 44 in 2021). Quick commerce startup Zepto (which attracted $ 231 million led by foreign investors in August 2023), was joined on the unicorn list towards the year end by consumer & small business loans firm Incred Finance (which attracted $60 million from domestic Family Offices and HNIs).
“While large ticket PE investors focused their attention towards sectors like Healthcare, Financial Services and Infrastructure, 2023 saw the slowdown in Growth- and Late- Stage investing trickle into the Venture Capital segment as well,” noted Arun Natarajan, Founder of Venture Intelligence.
“Towards the year end, on the back of strong public markets, private markets received a dose of optimism, which also translated into a few large growth stage tech investments going through,” he added.
