The last decade has been extremely eventful for the private equity and venture capital ecosystem in India. A quick look shows that during 2012 and 2021, India received approximately $237 Billion worth of private equity investment. India’s growing attractiveness has made it a favourable investment destination for Limited Partners (LPs) and General Partners (GPs) across the world. While the COVID-19 pandemic has caused widespread disruption across the global economy, the effect of the first wave on the private equity and venture capital industry proved short-lived. The pandemic also provided an opportunity of window for new solutions to emerge for combatting the urgencies emanating from world-wide lockdowns and stretched healthcare systems. As a result, the first nine months of 2021 saw private equity and venture capital investors invest $49 Billion across 840 deals, surpassing 2020.
Over the last decade, institutional investors, including Sovereign Wealth Funds, Pension Funds and Private Equities, have become key stakeholders in the India growth story. These investors have participated in financing, building, and operating infrastructure assets through Public Private Partnerships. To seek greater investment from institutional investors, the Government has curated investment models which allow for assets to be monetised through a framework which has: (i) long-term concession periods, (ii) low construction risk, (iii) proven revenue streams, and (iv) steady cash generation. In this context, the year 2021 saw the release of the National Monetisation Pipeline which identifies operational revenue generating assets worth $ 81 Billion for monetisation by 2025. Last year, we have already witnessed fundraising activities through the roll out of additional road bundles under the NHAI Toll-Operate-Transfer Model, as well as the PowerGrid Corporation of India and NHAI coming out with their Infrastructure Investment Trusts (InvITs).
India has seen over $100 billion investments flowing into start-ups since the beginning of 2010. The year 2021 also saw large investments across assets by venture capital investors. The hot and upcoming trend has been seen in deals focussed on direct-to-consumer sectors, which include e-commerce, food delivery, grocery delivery, gaming etc. During the year, Indian ed-tech unicorn BYJUs raising $1.5 billion, Swiggy picking up $800 million, while Zomato listing on public markets further accelerating the excitement in the Indian start-up ecosystem.
The investor interest during the year was dominated by the champion sectors of consumer technology, IT/SaaS, banking/financial services/insurance (BFSI), and healthcare, which attracted close to 80% of the total investment inflow. The IT and SaaS sector saw big-ticket deal activity of $100 million and higher.
This year has also catapulted India into the top nations with the record additions of Unicorns. With 43 new Unicorns added in just 2021, India’s tally of start-ups valued at over $ 1 Billion is now at 81, placing it third on the global map. These unicorns are representative of the strides India has made in the development of the startup ecosystem in the country, which has been evolving with their specialised adoption of new age methods, digitalised transformation, and operational efficiency. While major investments in these unicorns are driven by GPs such as Sequoia, Softbank, Accel, and Tiger Global, few LPs such as CDPQ, Temasek, QIA, and ADIA have also taken direct exposure in these start-ups indicating maturity and confidence in the whole ecosystem.
Direct-to-Customer, or D2C, companies has taken over investor imagination with the market for such services expected to touch $ 100 Billion by 2025. It is interesting to see how new age start-ups have introduced novel ideas by simply identifying the gaps and challenges thrown up by the global pandemic, customers’ expectations evolved solutions. With their agile DNA, white space capitalisation, innovative marketing, efficient supply chain management, and effective use of technology D2C companies such as Lenskart, Licious, Wow Skin, Zivame, Country Delight, and Lifelong, have occupied a specific place in the market.
Some startups which saw major investments were in the fields of E-commerce (Pharmeasy, Urban Company), Fintech (Cred, Zeta, Groww), Ed-tech (upGrad, Eruditus), and Food-tech (Licious). BYJU’s, Swiggy, Zomato, Flipkart and Pine Labs continued to be among the major giants that raised more than $5 Billion in 2021.
The SaaS industry in India has seen explosive growth in the last three years and the country is now home to 10,000+ SaaS startups in comparison to 3,000 in 2014. The country's higher smartphone user base, deeper internet penetration, and affordable data plans, complemented by payment gateways such as Unified Payments Interface (UPI), have given this industry a significant boost. At the current pace, this industry is likely to see valuations of up to $ 150 billion to 160 billion by 2025. India is not only witnessing a rise in capital inflows in such ventures but also leading by example in developing a strong digital economy. Notable companies providing SaaS solutions include Zoho, Freshworks, Druva, Innovacer, Postman, Zenoti, Icertis, Khatabook, Jumbotail, Chargebee, and BrowserStack.
The year 2021 will also be remembered for the fundraise undertaken by companies through the public markets. The year saw a flurry of Initial Public Offerings (IPOs) with 63 companies getting listed on the exchange, of which 15 offers gave a premium of more than 300%. This indicates a strong economy and a sign of revival of the market. IPOs which gave multi-bagger returns included Nazara Technologies, Sigaria, Nykaa, Zomato, Laxmi Organic Industries Ltd, Easy Trip Planners, and Nureca Limited. This momentum is likely to continue in 2022 with start-ups such as Ola, Snapdeal and MobiKwik expected to go for their IPOs. The early signs can be seen through the 30+ companies that have already filed their documentation and are waiting SEBI approval. .
While the last couple of years brought a shift in marketing trends through disruptions, they also opened a window for innovation. We saw collective minds going back to the drawing board to cater to customer needs. A paradigm shift in customer outlook towards health and wellness brought about behavioural changes across global economies. It will be interesting to see how the trends emerging in the previous years will firm up and sustain in 2022 and the years to come. While the last two years have encouraged innovation and sustainability of new business ideas, the coming year would likely be the year when these ideas start scaling up and entering the next stage of their lifecycle. This process will be guided by digital acceleration, vaccine penetration, and wider adoption across Tier-II and Tier-III cities.
Another emerging trend that has been witnessed over the last few years is the emphasis on Environmental, Social, and Governance (ESG) principles while making investment decisions. With the global focus on climate change getting renewed attention during the commitments made at the COP26 Conference in Glasgow, the ESG-compliant companies are likely to see increased allocation.
This year, there may also be additional deal activity in emerging areas such as gaming and content, electric vehicles, renewable energy, smart cities, transportation, and logistics.
Over the last few years, the emerging trend has seen more international LPs prioritizing India and allocating it a significant share in their portfolios. The returns made by investors over the last years in the country has only solidified this belief, especially given the climate of uncertainty elsewhere in the Asia-Pacific region. Riding on this momentum, India is likely to continue attracting significant interest and investments from institutional investors in the year 2022 across sectors and stages.