India's venture capital scene hits $10 billion investment milestone

23 March 2020 4 min. read
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India’s venture capital industry had enjoyed its best year on record, reaching £10 billion in deployed capital. The figure represents a jump of over 50% from the previous year according to analysis from Bain & Company. 

India’s strong performance reflected an overall bullish venture capital landscape across the globe, which is striking in light of high levels of uncertainty that emerged from various factors last year. India’s 55% jump in capital deployment since 2018 was paired with a 30% increase in deal volume.

Bain & Company anticipates further jumps in the near future, owing to $7 billion in dry powder availability in India at the end of last year, which also marks its highest ever level. Globally, dry powder now stands at over $1.5 trillion

It remains to be seen, however, whether this positive economic and sector outlook will manifest itself in light of the compounded uncertainty that has emerged since the start of 2020.

Highest investment deployed in India till date,

Spending is at a low due to the Covid-19 outbreak, which calls for keeping a close watch on the venture capital landscape over the next few months. Bain’s focus is on last year, and the new heights that India has managed in that period.

In its report, which was commissioned by the Indian Private Equity & Venture Capital Association (IVC), the global strategy consulting firm has traced the various growth phases over the last decade.

In 2011, at the start of the decade, the startup environment in India was finding its legs, which led to growth in activity. The startup boom caught the attention of many across the globe, pushing a number of large international venture capitalists to enter the Indian market.

This vibrant outlook persisted till 2015, after which activity slowed to some extent. “The lack of clarity regarding exits made investors more cautious, and that shifted the focus to fewer and higher-quality investments,” write the report's authors. Now, both capital flow and activity are back with a bang.

Deal size and volume

Bain tracks India’s private equity market regularly, providing annual updates on the overall outlook. Last year, the firm similarly reported strong growth in India’s private equity sector, as the funds raised had jumped by 50% since 2017 to reach a value of just under $6 billion.

This figure is $10 billion now, signifying the rapid boom over the last two years. Predictably, the latest boom is being dominated by the tech industry, which is soon becoming a driving force for India’s economy. Consumer tech, software, financial technology (FinTech) and business-to-business (B2B) commerce are the dominant tech segments.

Consumer tech was the largest among these, drawing 35% of all funding, with a number of deals exceeding the $150 million mark. This strong performance was driven by growth in the e-commerce sector, while funds are also flowing into health tech, food tech and education tech, according to the consultants.

Dry powder availability

The firm also reports that most startups that are now coming up in India revolve around the tech sector, ranging from consumer tech to FinTech and software-as-a-service (SaaS). “The government’s flagship programmes like StartupIndia, Digital India, and the Alternative Investment Policy Advisory Committee (AIPAC) will only accelerate this process,” said Sriwatsan Krishnan, Partner at Bain & Company and co-author of the report.

Bain also quotes the President of the India Venture Capital Association Rajat Tandon, who said, “here is a massive pipeline of soon to be unicorns; few of the Indian Unicorns will become decacorns by 2025. All this could not have happened without the support of the current government and the exits driven by first-generation entrepreneurs in the last couple of years.”

“The prompt resolution of issues like Angel Tax by regulators/policymakers and the initiative of hosting the 2nd edition of Global Venture Capital Summit by Commerce Ministry, DPIIT, are much appreciated & welcomed by the Startup/Venture Capital industry.”