Investors’ appetite to back startups high despite exit slowdown: Bain & Company’s Sriwatsan Krishnan

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Updated: Mar 17, 2021 6:25 PM

The notable exits in 2020 included Byju’s acquisition of WhiteHat Jr. with around $300 million exit value and around $220 million in the secondary sale at Swiggy that gave exit to investors such as Elevation, Accel, Norwest Partners, RB Investments, and Bessemer.

Instead of funding incubators, the government may do better by making sure that high-quality digital infrastructure is available for everyone, along with general promotion of ease of doing business.Since 2017, the dry powder with VCs in India has remained at $6 billion or above except in 2019.

India-focused venture capital (VC) firms raised around $3 billion during the Covid year 2020 in new fundraising, up 40 per cent from 2019. Against that trend, if one looks at the dry powder remaining stable, and VC deal flow reaching $10 billion, there is a clear indication that investment appetite on the part of VCs remains high, Sriwatsan Krishnan, Partner, Bain & Company told Financial Express Online. Dry powder is colloquially referred to the strategic amount of cash on hand with investors to invest in appropriate investment opportunities that may require immediate funding.

Since 2017, the dry powder with VCs in India has remained at $6 billion or above except in 2019 when it dropped marginally to $5.5 billion. In 2020, VCs were left with a $6-billion reserve, according to India Venture Capital Report 2021 by Bain & Company and IVCA. On the other hand, while the deal volume for VC investments in Indian startups increased to 809 in 2020 from 756 in 2019, the deal amount saw a slight decline to $10 billion from $11.1 billion in 2019. This meant that while the average deal size contracted due to Covid in 2020 to $12.4 million from $14.7 million in 2019, the deal-making momentum accelerated. “This should also be read in conjunction with exits slowing down this year, despite which new rounds were closed which indicates continued interest in new investments especially in digital native business models which flourished during and after Covid,” Krishnan added.

Also read: China’s Shunwei Capital exits Koo’s parent; sells stake to Kalyan Krishnamurthy, Nikhil Kamath, others

VC exits witnessed a decline of 70 per cent to $1.3 billion in 2020 from $4.4 billion in 2019. Muted exits were driven by the impact of the pandemic on businesses, potentially reducing their valuations and hence making it an unfavourable time for investors to cash in on their investments. Sector-wise, one-third exits were reported in edtech segment while around 20 per cent came from foodtech. However, the exit momentum is expected to improve over the next one to two years as most of the top VC funds’ portfolio is yet to reach maturity. The average holding period of funds such as Tiger Global, Sequoia, Matrix, Lightspeed, and Elevation Capital is over 5 years. The notable exits in 2020 included Byju’s acquisition of WhiteHat Jr. with around $300 million exit value and around $220 million in the secondary sale at Swiggy that gave exit to Elevation, Accel, Norwest Partners, RB Investments, and Bessemer.

Importantly, 15 per cent Indian startups were forced to shut operations in 2020, according to the report. “Startups did take a significant hit, especially during the months of cold lockdown. Companies operating in sectors such as B2B tech and commerce, or lending, would have faced relatively greater disruption than others which saw tailwinds in user adoption as well as favorable government policies — prime examples include sectors like edtech and health tech,” Arjun Upmanyu, Associate Partner, Bain & Company told Financial Express Online.

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