This year has been the biggest year for venture capital and private equity (PE/VC) investments in the past decade. Risk capital investors have infused a record $23.34 billion through 537 deals in 2017 so far, according to research firm Venture Intelligence. In 2016, the PE/VC segment saw a higher number of deals, at 725, but the $15.38 billion invested was much lower than in the current year. The previous highest investment was of $17.5 billion in 2015 through 823 deals. Market participants said the increase in fund sizes, some big-ticket deals and successful exits in the primary markets for PE players have helped fuel the boom. Rahul Bashin, founder and managing partner, Baring Private Equity Partners, said, “Fundraising going up when markets do well is pretty normal. Exits have also been very high this year, and the number of deals has come down because there has been more consolidation.”
Darius Pandole, managing director & CEO, JM Investment Managers, pointed out that “the plethora of profitable exits over the last 2-3 years, by way of IPOs, strategic sales, and other means, have given investors greater confidence in the PE/VC asset class”. He added, “Over the past few years, the maximum number of deals have occurred in the small to mid-sized segment where investment tickets are below $25 million per deal.” This year, however, has seen a fair number of big-ticket transactions. E-commerce leader Flipkart received $2,500 million from SoftBank Corp and another $1,400 million from Tencent and others. One97 Communications, which owns mobile payments service provider Paytm, received $1,400 million from SoftBank Corp. Online cab aggregator Ola received $1,100 million from Tencent, SoftBank Corp and other investors. Among the old economy businesses, Axis Bank received $1,049 million from Bain Capital, while Bharti Infratel, Ruchi Soya, Global Logic and IndoSpace Core received $500 million or more each.
“The fund sizes have increased for most of the PE funds and they are looking at larger deals. The second driver is the increase in stake dilution (how much promoters are willing to dilute). So if they were earlier willing to dilute 10% to 20%, they are now willing to dilute even more,” said an investment banker on the condition of anonymity. Market participants expect significant private equity activity in 2018 too. “Both public and private equity markets will continue to see robust activity in 2018,” said Nipun Goel, president and head, IIFL Investment Banking. Pandole is more cautious. “The outlook for the next year is one of cautious optimism. There is incredible entrepreneurial activity, resulting in significant investment opportunities across segments. However, the challenge is to ensure that entry valuations are rational,” he said.
“The sectors that are likely to continue to see significant deal activity will be financial services, consumer and healthcare, which are driven by the domestic consumption and urbanisation themes,” he predicts.