Startups continue to receive the maximum share of PE & VC investment, says The Fourth Wheel 2017 - a Grant Thornton in India report

Startups continue to make the highest contribution to the private equity (PE) and venture capital (VC) deals space in 2016. According to the fifth edition of Grant Thornton in India’s The Fourth Wheel 2017 report, the segment has received the maximum investment of US$ 2.5 bn and constitutes 70 percent of the transaction volumes in 2016.

The report focuses on PE/VC industry in India and has been produced in association with Indian Private Equity and Venture Capital Association (IVCA), an organisation that works towards promotion of PE/VC firms. It was released today by Shri Jayant Sinha, the Minister of State for Civil Aviation at the IVCA Conclave 2017.

The report further adds that values and volumes of PE & VC investments were lower in 2016 due to the lack of the big-ticket investments that were made in the previous year. PE and VC investors invested US$ 14 bn in 971 deals in 2016 wherein US$ 16 bn was invested in 1045 deals in 2015. This is the first decline in the PE activity in the last four years.

Releasing the report, Harish HV, Partner – India Leadership team, Grant Thornton India LLP said, “Although 2016 saw a decline in the PE activity, we are hopeful for 2017. It could be the year of reckoning for the country where implementation of structural policies and reforms such as the GST and the recently announced measures in the Union Budget 2017, by way of massive push to the infrastructure sector, plans to integrate the transport architecture, renewed focus on affordable housing and a boost for ease of doing business will drive growth. Also, expected improvements in the banking sector, pick up in the rural demand, post the effect of demonetisation, a robust primary market and improving capacity utilisations across industries are likely to drive domestic economic activity. Amidst global uncertainties arising due to Brexit, protectionist policies proposed by the US and a slowing Chinese economy, India continues to be the bright spot. India is likely to drive resilient growth in deal activity in 2017.”

While startup remains the key focus for the PE and VC investors, the report says that the investment values in startups declined by more than 50 percent this year, signifying rationalisation of investments and startup valuations. However, the Government’s push on digitisation and initiatives under the Startup India plan are likely to lead a rebound in this segment.

Apart from startups, the other sectors that witnessed the maximum transactions were telecom, banking and financial services, real estate, IT/ITeS and manufacturing. These sectors along with startups contributed around 78 percent of the overall deal value in 2016.

Another interesting trend that was witnessed in 2016 was the significant increase in the number and the value of buyout deals from 2012 to 2013-2016 with the value of buyouts clocking almost four times in 2016 when compared to 2015. Also, 2016 witnessed substantial activity in exits especially through IPOs, which augurs well for the investor community.

The report highlights that the fund raising activity in the PE and VC space witnessed a decline of 6 percent in 2016. PEs and VCs raised closed to US$ 24.1 bn in 2016 as compared to US$ 25.7 bn in 2015.