NEW DELHI: Private Equity players are seen sealing the year with record investments of nearly USD 20 billion in India as they opened their wallets to help fuel the startup eco-system.
An interesting trend in PE and Venture Capital investments this year was the involvement of high net worth individuals (HNIs) and industry leaders like Ratan Tata, Azim Premji and Narayana Murthy, which in turn provided increased profile to the startups especially among investor community.
The shortfall in M&A activity this year was made up by a significant increase in PE deals on booming investments in the e-commerce segment and supported by deals in real estate, technology and financial services sectors.
According to global consultancy EY, up till November this year there were PE investments worth USD 18 billion in over 700 transactions and this deal tally is expected to be close to USD 20 billion by the end of this year.
There has been a 60 per cent jump year-on-year in both investment value and deal volumes. Moreover, there has been a 2- fold jump in early stage deals, indicating a vibrant start-up ecosystem, experts said.
"Renewed interest in India was demonstrated by the fund raising success which was on an upswing with a number of Indian GPs raising their follow-on vehicles – IVFA, Everstone, Multiples, Samara, Lighthouse, Westbridge etc. Total funds raised touched USD 6 bn which is the highest ever," EY Partner, Transactions and Private Equity Mayank Rastogi said.
Many Indians, who were traditionally fond of investing in stock market, art and gold are now shifting their focus to start-ups, experts said. There have been multiple instances of HNIs investing in mid stage companies.
"Number of family offices and HNIs are focusing on the space and so are the more successful startup entrepreneurs such as Snapdeal/ Flipkart promoters and senior corporate professionals (ex- Microsoft India CEO, PE fund managers in their individual capacities etc.)," EY's Rastogi said.
Some recent examples are Chairman emeritus of Tata Sons Ratan Tata's investments in Snapdeal, PayTm and Ola Cabs, Russian entrepreneur Yuri Milner's in Flipkart and Ola cabs through his fund DST Global and Narayan Murthy's joint venture with Amazon (through Catamaran Investments).
"HNI investments in early stage ventures is by itself not a new phenomenon, particularly since Angel and seed funding is typically provided by individuals. However, there are some new trends emerging with respect to the nature and rationale of some of the more recent HNI investments," Vikram Hosangady – Partner and Head, Deal Advisory at KPMG in India said.
The influx of new angel/superangel investors would not just give support to these startups financially but also in sharing their experiences of building and running large enterprises, thereby making the startup-ecosystem mature, experts said.
"This will surely go a long way in making the ecosystem more mature, equipping entrepreneurs with the necessary firepower to take on local and/or global challenges. Having said so, there is still a lot of scope for more domestic investments to come into the startup ecosystem if we have to create a Silicon Valley equivalent in India," Ambit Corporate Finance Director Sanjith Kumar said.
Sanjeev Krishan, Partner & Leader - Private Equity & Transaction Services, PwC India also believes that the likes of Ratan Tata and Azim Premji are refuelling the start-up ecosystem.
"If you look at the investments made by their family offices, they seem to like the start - up ecosystem. In fact, some family offices have taken an LP position in a debt fund for the slightly evolved start - ups and this only goes to show they won't shy away from the space. I expect this to continue in the new year, Krishan added.
However, Kirsty Wilson, Global Research Editor global deal tracking firm Mergermarket, believes the investments made by individuals such as Ratan Tata and Azim Premji are unlikely to refuel the start-up ecosystem as the investments are made in their personal capacities and deal sizes are also very small.
"The deal sizes are mere fractions of the amounts being doled out by institutional and corporate investors such as Tiger Global, DST and Softbank. It is not likely to move the needle," Global Head of Content Development Anjali Piramal Mergermarket said.
Although investments in startups are at an all time high, this is a risky business, experts said as the success rate for these new-age companies is less. Moreover, in recent times some food related startups have also fired a significant percentage of their employees.