As foretold, India is finally delivering a big bang exit year for Limited Partners (LPs)--those investors who provide capital to private equity (PE) and venture capital (VC) funds.
The influx of global liquidity into India combined has played out twofold. One, it is making it easier for PE and VC firms to raise new capital. Second, it has also led to a frenzy in the capital markets, allowing HNIs to book profits and divert a significant chunk of that capital into the domestic alternative investment industry.
India is also set to benefit from the pivot from China. Many funds are shifting their allocation from China to India, in light of the Chinese government crackdown on certain segments and industrialists.
Moreover, following the successful listings of VC-backed unicorns such as Nykaa and Fino Paytech, there was continued strong investor interest for VC-backed, new-age companies like Zomato, PayTM, Policy Bazaar, and others looking to complete their listings. It's hardly a surprise, then, that the amount of money returned to LPs this year has exceeded the past three years combined.
PE/VC deal activity in Calendar 2021 has significantly exceeded previous all-time highs. PE/VC investments have recorded $65.6 billion in 2021 till October end, 38% higher than the previous annual high recorded in 2020, and exits have recorded $38.7 billion, 43% higher than the previous calendar high recorded in 2018, according to a report by the Indian Private Equity & Venture Capital Association (IVCA) and consultancy firm EY.
On a year-on-year (y-o-y) basis, too, exits recorded more than a seven-fold increase in terms of value in the first half of 2021 (1H21) compared to 1H20 and 2H20 ($22.5 billion vs. $3 billion in 1H20 and $3.1 billion in 2H20), and more than 3.7 times the value recorded in entire 2020. This is also the highest half-yearly value of exits and the second-highest on an annual basis. The number of exits in 1H21 (118 exits) was 82% higher compared to 1H20 (65 exits) and 37% higher compared to 2H20 (86 deals), according to IVCA and EY.
Exits via strategic sale were the highest with $12.7 billion recorded across 29 deals, accounting for 57% of all exits in 1H21 which is mainly on account of the large GlobalLogic-Hitachi deal worth $8.6 billion. Next in line were exits via secondary sale (sale to other PE funds) at $4.5 billion (31 deals) that recorded the highest ever half-yearly value and four times the value recorded in entire 2020. Open market exits recorded 38 deals worth $2.9 billion, the IVCA and EY report noted. PE-backed IPOs too recorded the highest ever half-yearly value of exits in 1H21 and second highest in terms of number of IPOs, which saw PE funds garner US$1.6 billion in sale proceeds across13 IPOs.
Going forward, what does this mean for LP allocation going forward? The IPO boom has also come as a booster shot to the HNI community, which will have implications for the domestic LP ecosystem. Already, significant HNI money has been poured into domestic funds such as Sixth Sense, 3one4 Capital, and others. This has also turbocharged the angel investment community – which has seen exponential growth this year.
This has translated into a surge in investments into the start-up ecosystem, kickstarting a new era for India.