Inflows from private equity, venture capital funds to domestic companies plunge to $27.9 billion in 2023

Mumbai: Investments from private equity and venture capital funds into domestic companies declined about 40 per cent to $27.9 billion so far this year, while the outflow increased marginally to $19.34 billion year-on-year.

According to the numbers collated by Venture Intelligence that tracks private capital and debt flows, and industry body IVCA, investments by private equity and venture capital funds as of December 20, 2023, fell to a low of $27.9 billion across 697 transactions, as against $47.62 billion inflows in 2022 across 1,364 deals.

The year also saw more money being pulled out from the country by private equity players with overall exits touching $19.34 billion from 248 companies as against 233 exists worth $18.45 billion in 2022, according to the data.

Industry watchers, however, said green shoots of more funding is very much visible in the coming year.

The funding slowdown this year is a temporary adjustment, and as we move forward, we expect renewed and robust inflows, said Rajat Tandon, president of IVCA (Indian Private Equity and Venture Capitalist Association).

He said the ongoing green shoots of funding indicates an opportune time for venture capitalists, domestic private equity and private capital firms to create pools of capital to cash in on emerging opportunities in the domestic startup ecosystem, which demonstrates resilience in the face of challenges, offer innovative solutions to current market needs, and possess the potential for sustainable growth.

According to Tondon, the decline in investments this year mirrors the trend of larger but fewer investments, indicating a focus on projects and businesses that have the potential to create substantial value and foster sustainable growth.

The top five investments of the year included TPG Capital and Temasek pumping in $2.4 billion into Manipal Hospitals in April, followed by HDFC Credila (the education loans arm of the now defunct HDFC right before its merger with HDFC Bank) being snapped up by Baring Asia and ChrysCapital for $1.35 billion in June; Qatar Investment Authority pumping in $1 billion into Reliance Retail Ventures in August; the renewable player Avaada Ventures getting $1 billion from Brookfield in April; and fertility clinic Indira IVF Clinics getting $732 million from Baring Asia in July.

Venture Intelligence said the fall in volumes is a strategic refinement and suggests a strategic approach to investment, focusing on quality and sustainability along with optimizing opportunities and ensuring a more discerning selection process for long-term value creation.

The investments were led by sectors such as the healthcare and life sciences which saw 30.2 per cent higher inflow compared to last year, energy (14.5 per cent), retail (98.8 per cent) and advertising & marketing which received inflows nearly double (199.8 per cent) than last year.

In contrast, sectors that saw deepening funding winter included players in the IT & ITES sector receiving 64.5 per cent less than what they got in 2022. While BFSI (Banking, Financial Services and Insurance) sector got 47.6 per cent less this year, funding in manufacturing went down by 43 per cent, while in engineering & construction lowered by 64 per cent.

Also, shipping & logistics witnessed a fall of 60.6 per cent, inflow in education lowered by 78.4 per cent. It declined by 48.5 per cent in FMCG and fell 80.9 per cent in agri business, dipped 70.4 per cent in food & beverages, and decreased by 83.6 per cent in telecom.

The top five PE exists in the year were Tiger Global and Accel India selling their holdings in e-commerce major Flipkart to its parent Walmart for $1.78 billion in July; Lenskart investors Chiratae Ventures, PremjiInvest, Unilazer Ventures, Steadview Capital, TR Capital, Kris Gopalakrishnan, and Epiq Capital paring their holdings to the Abu Dhabi Investment Authority for $410 million in March; non-banking lender DMI Finance getting $167 million from Japanese banking major MUFG Bank by acquiring stakes from the Burman Family Office, New Investment Solutions, and NXC Corp in April; personal care brand Mamaearth investors Sofina, Stellaris Venture Partners, Fireside Ventures, and Sharp Ventures selling their stakes in a public issue for $133 million in October; and shadow bank Veritas Finance getting $97 million from Multiples PE in July which bought stakes in British International Investment and Lok Capital.

The year also saw VCs withdrawing $3.5 billion through 79 exits in 2023 as against the outflow of $3.1 billion from 113 companies a year ago.

The top five VC exits through strategic/secondary sales were from Flipkart ($1.78 billion), Lenskart ($410 million), DMI Finance ($167 million), Mamaearth ($133 million vial IPO) and Veritas Finance ($97 million).