Calendar year 2021 was a record-breaking juncture for India’s tech start-ups, with investors netting $14 billion in overall exits across both secondary transactions and initial public offerings (IPOs). Out of $14 billion, venture capital (VC) and private equity (PE) investors earned around $5.3 billion in exits from tech start-ups that went public during the year, according to a report by consulting firm Bain & Company.
The Securities and Exchange Board of India’s relaxation of public listing norms was a defining moment for tech start-ups, with IPOs accounting for an almost 40% of the overall exit value in 2021, according to Bain & Company’s annual ‘India Venture Capital Report 2022’, released on Tuesday, in collaboration with Indian Venture and Alternate Capital Association.
Secondary transactions and strategic sales continued to be the primary mode of exit for VCs, with more than 60 deals amounting to $8.7 billion or 60% share in overall VC exit value. Three key exits, including the BillDesk acquisition by PayU, Paytm IPO, and Zomato IPO, accounted for majority of the exit value in 2021.
“Growing interest from global investors and PEs in growth-stage deals was a key driver of the buoyant secondary market … Five high-profile IPOs in 2021, accounting for $5.3 billion (of total IPOs value of $16.1 billion), had VC exits. IPO momentum was largely driven by shifting regulatory climate and public markets being at an all-time high, whetting retail investor appetite for tech listings in India,” the report said.
Prior to 2021, VC exits from start-ups had stagnated due to uncertainty surrounding the pandemic, and subdued public market returns. In 2020, Indian VC and PE investors managed to get just $1.4 billion in exits, and in 2019, the same number stood at around $4.4 billion.
In addition, the average exit value in 2021 grew to a healthy $183 million, which was the highest ever since 2015. Yet, 2021 saw only 78 exit deals, which was much lower compared to 116 exit deals recorded in 2019.
In terms of funding volumes in 2021, investments in Indian start-ups saw a meteoric 3.8X growth over 2020, leading to $38.5 billion in capital deployment, according to the report. The exponential surge in investments was driven by a dual impact, as both deal volume (1,545 deals in 2021) and average deal size ($24.9 million per deal in 2021) doubled relative to the previous year. Continuing the trend from previous years, consumer tech, fintech, and software as a service (SaaS) accounted for the lion’s share of VC investments at 75% of the overall deal value.
“While larger deal sizes in traditionally dominant areas such as eCommerce and SaaS were indicative of increasing maturity of these sectors; several new areas of investment focus emerged. Online B2B marketplaces, for example, saw the creation of four new unicorns led by an inflection in digital adoption across B2B supply chains. Similarly, web 3.0 and crypto/ blockchain-based technologies witnessed growing interest as 40 early-stage deals crossed $500 million in overall investments,” Sriwatsan Krishnan, Bain & Company partner and co-author of the report, said.
The year also witnessed a record upswing in “mega-rounds” of over $100 million investments, as global and domestic VCs led 92 large ticket size rounds across market leaders in e-commerce, online food delivery, fintech, edtech and gaming.