The last year was one of roiling uncertainty in the global economy, but for Indian start-ups it was a year of record venture capital (VC) investments. According to a joint report by Bain and Company and the Indian Private Equity & Venture Capital Association, VC-led investments soared to $10 billion during the year, over 55 per cent higher than in 2018, while deal volumes also grew substantially at 30 per cent.
“Even in the face of global economic uncertainty, 2019 was the second-most active year globally for VC investments. It was a milestone year for the Indian VC industry, too..,” said the report authored by Bain and Company’s Arpan Sheth, Sriwatsan Krishnan and Samyukktha T. “Additionally, India witnessed a 30 per cent increase in deal volume over 2018 as well as larger average deal sizes across all stages,” it added. The analysis splits the Indian VC industry’s evolution into three distinct phases.
Between 2011 and 2015, the industry experienced rapid activity growth (albeit off a small base) to support an evolving start-up environment. This phase saw multiple VCs becoming active participants in the country’s economy for the first then.
This “almost euphoric” period was then followed by moderation between 2015 and 2017, with lack of exit clarity making investors more cautious. Over the past two years, the VC industry has been in a renewed growth phase, buoyed by marquee exits like Flipkart, MakeMyTrip and Oyo. “Strong start-up activity in new sectors, such as fintech and SaaS and market depth in e-commerce” helped ramp up investment momentum.
“About 80 per cent of VC investments in 2019 were concentrated in four sectors: consumer tech, software/SaaS, fintech, and B2B commerce and tech. Consumer tech continues to be the largest sector, accounting for approximately 35 per cent of total investments, with several scale deals exceeding $150 million,” it added. Meanwhile, despite substantial capital deployment, availability of capital with VCs indicates that the upcoming year is likely to see this momentum maintained.
VC investment trend
Funds “for VC investing in India was at an all-time high of $7 billion at 2019 end,” the report said. While India-focused VC funds raised about $2.1 billion in 2019, lower than 2018, the fund-raising outlook for 2020 is positive among both limited and general partners