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NEW DELHI : Venture capital (VC) investments in India are set to remain at 2021 levels this year despite global headwinds but with a sharper focus on the quality of deals with larger rounds, said consulting firm Bain and Company. Overall, India’s VC funding reached $38.5 billion in 2021, growing 3.8 times over 2020, and faster than China’s 1.3 times increase. And the 44 unicorns minted in India were two more China’s. Moreover, the share of VC funding comprised more than half of overall private equity (PE) and VC investments in India in 2021.

Consumer tech, fintech and software-as-a-service (SaaS) continued to account for more than 75% of all VC investments by value in line with 2020, according to Bain’s India Venture Capital Report 2022 released on Tuesday. These sectors continued to see a significant expansion in deal size, indicating a maturing landscape.

SaaS specifically saw deal sizes expand as marquee Indian unicorns became category-defining leaders globally. These include Postman in API (application programming interface) management and BrowserStack in automated testing.

Interestingly, Web3 and cryptocurrency deals saw a big surge last year and are expected to see continued investor interest this year as well, the report noted. Investments in emerging technologies such as Web3 and cryptocurrency increased to more than $500 million in 2021 from just $20 million in the previous year even as consumer technology, fintech and SaaS continued to account for a substantial share of the total VC investments by value, the report noted.

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“While larger deal sizes in traditionally dominant areas such as ecommerce and SaaS were indicative of the increasing maturity of these sectors, several new areas of investment focus emerged. Online B2B marketplaces, for example, saw four new unicorns led by an inflection in digital adoption across B2B supply chains while Web 3.0 and Crypto/ blockchain-based technologies witnessed growing interest with 40+ early-stage deals," said Sriwatsan Krishnan, partner in Bain’s private equity practice.

Notably, in the second half of 2021, Sequoia Capital India, the most active investor in India, made 19 investments in Web3 startups, Rajan Anandan, managing director at the VC firm said at the Hindustan Times Leadership Summit last year.

The report also pointed out that compressed valuation multiples in global public markets will probably see a trickle-down impact, leading to rationalization in valuations and a focus on unit economics, adding that exits via public listings may see some moderation as companies with IPOs in the pipeline may adopt a wait-and-watch stance given the global headwinds in public markets.

That said, Bain noted that a few emerging sectors will continue to see interest. These include Web3 or crypto-based investments, creator commerce, and core sectors such as agritech and healthtech. Other trends that are likely to impact investment momentum in 2022 include stricter IPO norms that are expected to be rolled out by market regulator Sebi, specifically focused on capping investor share offloading at IPOs; regulatory shifts that are likely to continue to affect a few sectors such as online gaming, cryptocurrency, and fintech; and talent attraction and retention.

Sai Deo, associate partner in Bain’s private equity practice added that the shape of the fund landscape also underwent a significant shift as traditional PE funds showed an interest in growth equity deals while family offices and seed funds mushroomed.

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