Startups receive maximum PE investment in 2015

Volumes in private equity (PE) & venture capitalists (VC) investments in 2015 have touched an all-time high with close to 1,049 deals largely due to increase in investments in India’s startups, according to the fourth edition of Grant Thornton’s The Fourth Wheel 2016 report.  The report says that over 600 investments of the total PE/ VC investment volume has been made in startups. This reflects the increased interest of PE/ VC firms in the Indian startup ecosystem.

The report focuses on PE/ VC industry in India and has been produced in association with IVCA, an organisation that works towards promotion of PE/ VC firms. The report aims to set out the key emerging trends in the Indian PE space deal data based on Grant Thornton’s Dealtracker report and views from experts across leading PE/VC funds. The report was launched today at IVCA Conclave 2016.

The Fourth Wheel, which was the new addition to the Indian Corporate Sector dominated by three other Wheels (PSU, MNC and Indian private sector), no longer needs justification as to why it is a Wheel as the rate at which it is growing clearly indicates that it has become an integral part of the engine driving the corporate world in India.

When it comes to the value of PE investments in 2015, the report says that the year witnessed an increase in big ticket deals valued over US$ 500 mn each. This is an evidence of a promising business environment that has the potential to attract big investments. However, the level of PE investments is yet to match the big ticket investment levels in 2007. 2015 attracted 194 investments valued at US$ 10 mn and above, a growth of 15 percent from the previous year. This was primarily across sectors such as BSFI, infrastructure, real estate, manufacturing, pharma, energy and retail along with upcoming e-commerce companies.

While there has been a huge increase in the total deal volume and value in 2015, the average deal size has come down from around US$ 20 mn to US$ 15 mn on the back of investments in startups. These investments are relatively smaller in size. The report says that IT and ITeS sector has been the main driver for growth in 2015 (38 percent growth year-on-year,) on the back of impressive level of interest in startups in e-commerce space. This interest in start-ups enabled the sector to reach a 10 year peak level of investment value (US$ 7 bn).

Commenting on the PE space, Harish HV, Partner, Grant Thornton India LLP said, “For a robust market we need both the ends firing i.e. the startup end which funnels new thoughts/ideas and helps generate new businesses and an active IPO market where funds which have invested can exit through listing. Indian PE space was suffering because of the lack of adequate activity in both these ends. However, we have seen both these correct in 2015 which is good news for the industry.”

While, angel investors are leading the investments in startups, followed by PEs setting up startup focussed funds, an interesting trend that is emerging is the corporates and multinational companies setting up funds to invest in smaller startups and marquee entrepreneurs making investments in their personal capacity. Looking at the present scenario there is enough funds to be deployed, but the challenge still remains to identify an attractive investment opportunity.