Despite a talk of slowdown across markets, private equity and venture capital investments in the Indian market touched an all-time high of close to 1,049 deals in 2015, according to the fourth edition of Grant Thornton report The Fourth Wheel 2016 released on Thursday.
The positive sentiment was driven by increase in investments in Indian start-ups, the report added. Over 600 investments were made in start-ups, reflecting the increasing interest in the ecosystem.
The report, which focuses on private equity and venture capitalists industry in India, was produced in association with the Indian Private Equity and Venture Capital Association (IVCA).
Private equity funds and venture capitalists, with a focus to invest in India and other South and South-east Asian countries, raised close to $26 billion in 2015 compared to $17 billion in 2014. Of the total funds raised, approximately 60% is expected to be invested in India.
The report said that private equity investments drove the deal momentum in 2015 in the Indian deal space with over $16 billion invested in more than 1,000 investments.
The deal value growth was driven by large investments accounting for around 3% of volumes but contributing to around 50% of the total investment values. The year also witnessed an increase in big-ticket deals valued over $500 million each.
Besides this, 2015 attracted 194 investments valued at $10 million and above, a growth of 15% from the previous year, across core sectors such as banking, financial services and insurance, infrastructure, real estate, manufacturing, pharma, energy, and retail and e-commerce.
While there was a huge increase in total deal volume and value in 2015, the average deal size came down from around $20 million to $15 million on the back of year-on-year investments in start-ups. These investments are relatively smaller in size.
The report said the information technology (IT) and IT-enabled services sector has been the main driver for growth in 2015 (38% year-on-year) on the back of impressive level of interest in e-commerce start-ups.
“For a robust market we need both the ends firing—the start-up end which funnels new thoughts and helps generate new businesses and an active IPO market where funds which have invested can exit through listing. Indian private equity 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," said Harish H.V., partner, Grant Thornton India Llp.
While angel investors are leading the investments in start-ups, followed by private equity firms setting up start-up focused 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.
The report also mentioned he rise in the trend of venture debts, a source of funding by start-ups as it helped them manage the working capital requirements without diluting equity stakes. The market for venture debt, which currently is at less than 5% of the total capital raised—compared to 10% in developed markets—is expected to grow in the future, it said.
The year 2015 also witnessed over 140 exits, a higher number compared to the last couple of years. The preferred exit routes were open-market stake sale of listed companies, followed by secondary stake sales.