Subject Name: Financial Management Services

Title : Venture Capital

Submitted to: Dr. Urvi Amin

Submitted by:
B-01 Aaska Vaidya
B-50 Jeel Soni
 1. The PE/VC trap: do they push growth over
profitability?
Valuations seem inflated; the whole ecosystem seems inflated. Nothing changes
fundamentally—just the belief of those people writing the cheques changes, and they are
willing to bet on that belief. Valuations have indeed gone up, but the reason is threefold.
“Firstly, opportunity and exit size have gone up, and therefore deals can be underwritten
at higher valuations today; secondly, scalability of companies is much higher, given that
a lot of the underlying infrastructure exists, e.g. payments, logistics, market access, and
thirdly many second and third-time founders are starting new companies and they have
been through a learning curve in the past.
VCs are not forcing growth. The entrepreneurs are. VCs only back entrepreneurs. There
are cement, steel and pharma companies that build capacity ahead of the market, too.
Sometimes you can misread a market. I will maybe tell someone don’t grow at such a
speed that you might crash. But you can't hang them for wanting to grow fast.
Sometimes you allow your aspirations to run ahead of data which is okay. It is all part
and parcel of entrepreneurship.”
Chadha elucidated that VCs would then raise the next round on these companies and
put in more money, so they can keep pushing the evaluation. The same VC may then
pool money with a new VC and they share the value pro-rata. That could be a large
number and that helps VCs to raise a second fund, and so far it has only been up to three
years. It is too early to judge a portfolio company's performance, but then you've already
raised the next fund. It's an ability to deploy more capital quicker. "That helps us as VCs
to raise larger funds. This is what is happening globally.
That seems to be in the Indian DNA. “Indians are used to these kinds of rewards. They
have the same kind of drive to get through competitive exams. Why are there not so
many startups in France? Indians are so sure of competing even when they know their
chances of success are very low, only one or two per cent.
 2.The VC blitzkrieg: deal value doubles to
$26bn in 2021
Investment activity flourished even as Covid-19 raged, the private capital market showing
remarkable vitality.
Venture capital (VC) deal value more than doubled to $26 billion in September this
year, from $11 billion in the year earlier, according to a report by industry lobby, Indian
Private Equity and Venture Capital Association (IVCA), and multinational research firm,
Preqin.
Private equity (PE) represented the largest segment of Indian alternative assets with $31
billion assets under management (AUM), up by 2.3% from a year ago. Yet VC
performance was neck-to-neck at $26 billion in aggregate deal value.
Preqin’s research revealed the number of venture capital deals completed may be
dropping off, but their size is increasing. “More international LPs are prioritising India
as a key emerging market, a trend helped by a climate of uncertainty elsewhere in the
Asia-Pacific region," Fai added.
The key sector for funding is tech with a market share of “at least $750 billion within a
$4.5-5 trillion Indian economy by 2030,” the report projects.
With $15 billion worth of dry powder as of September 2021, the market is hot and the
unicorns keep coming—edtech firm Byju’s; the e-commerce website Flipkart Pvt Ltd;
and Licious, the meatpacking company owned by Delightful Gourmet Pvt Ltd—which
just completed a G-round funding this week, Fortune India reported.
Indian private capital markets will see robust earnings and successful IPOs of tech
companies in 2022.
Until August of this year, cumulative exits by PE/VC funds reached a remarkable $31
billion. There was more good news for the sector as PE-backed buyouts amounted to $19
billion in 2020, 162% higher than 2019’s $7.4 billion. The figure clocked at $9.4 billion
for 2021 to date.
Exit options for investors in India have improved to a great extent over the past five
years especially in PE-to-PE transactions, strategic exits and appetite for IPOs in the
financial markets. A dozen PE/VC-funded companies have filed for IPOs, which are
expected to hit the market in late 2021.
The lobby’s chairman believes the asset class is proving to be a significant part of GDP
growth, a result of robust investment flow. Ramnath said—as alternative investments
come of age in the country the asset class to GDP ratio could rise to “at least 3% if not
5%.”
India absorbed $123 billion in the last two years vis-à-vis $200 billion in the last 5 years.
Annually this is (close to) 1.8% of India’s current GDP.
 3.$28 billion—riot of PE-VC funding by
private firms
Between January and August 2021, companies across e-commerce, fintech, and edtech
attracted the maximum fundings—with July recorded the highest funding amount at $7.9
billion.
Although the severe second wave of the Covid-19 pandemic disrupted businesses across
sectors during the early months of 2021, it hasn’t stopped venture capital (VC) and
private equity (PE) firms from cherry-picking opportunities and parking their funds in
Indian businesses with growth potential and offering good returns. The numbers tell a
story. Between January and August this year, privately-held companies, including
startups, have raised a whopping $28.35 billion in total funding—which was spread
across 1367 deals—according to data from analytics firm Tracxn.
Tracxn’s data reveals that in the e-commerce space, Walmart-owned Flipkart raised an
eye-popping $3.6 billion in a Series J funding round in July this year led by GIC, Canada
Pension Plan Investment Board, SoftBank Vision Fund 2, and Walmart. The funding
round valued Flipkart Group at $37.6 billion post-money. The other key deals in the
space include Meesho—a social commerce platform—raising $300 million and business-
to-business (B2B) e-commerce startup Udaan raising $280 million. The data includes
funding rounds between January 1 and August 31, 2021.
Tracxn further added that this year, the month of July recorded the highest funding
amount at $7.9 billion spread across 163 deals.
“Some business-to-consumer (B2C) industries like edtech, food delivery and e-
commerce have seen a significant acceleration in maturity by two-three years due to the
pandemic and hence these players have been raising capital to scale up appropriately. In
other industries, entrepreneurs are betting big on the earnings cycle turning positive
over the next 3 -5 years,” says industry expert Sandeep Das.
According to Tracxn, in the fintech space, the major deals include digital payments
service provider Pine Labs attracting $600 million, fintech startup BharatPe raising
$370 million, and Bengaluru-based Cred raising $215 million valuing the company at
$2.2 billion. While in the edtech space companies such as Byju’s, Unacademy, Eruditus,
and upGrad ruled the roost in raising funds in the last few months. Both upGrad and
Eruditus also joined India’s coveted unicorn club—which are privately-held companies
that have reached a valuation of $1 billion or more—during the period under review.
Das points out that some of this buoyancy is related to the monetary policy stance taken
by the U.S. Federal Reserve. “As the Fed intends to continue the easy monetary policy
for the next 3-4 quarters, the money supply is likely to continue. In addition, the
expectation of a significant recovery in earnings and massive government investment
should see entrepreneurs looking to raise more funds. Some tech investors might be
looking at India as an alternative to China given the Chinese government crackdown on
the tech sector,” says Das, the author of Hacks for Life and Career: A Millennial’s Guide
to Making it Big.
However, according to data from Tracxn, between January 1 and August 31, 2020,
Indian companies including startups raised total funding of $33.2 billion across 1321
deals. Last year Reliance Industries Ltd’s technology and digital services arm (Jio
Platforms) and retail segment (Reliance Retail Ventures) were the most funded
companies. Reliance Retail Ventures raised $6 billion in growth capital, while Jio
Platforms raised a staggering $20 billion in the months during the nationwide lockdown
in 2020.

4.Solar sector heats up with big-ticket

Edelweiss deal
Edelweiss Group’s Edelweiss Infrastructure Yield Plus fund acquires 74% stake in solar
portfolio of France’s Engie Group for a reported $500 million.
In its quarterly solar funding and M&A report for the quarter ended December 2020,
Mercom Capital Group—a leading market intelligence provider in the clean energy space
—also said: “Global venture capital and private equity funding in the solar sector in
2020 came to $1.2 billion in 41 deals, compared to $1.4 billion in 53 deals in 2019.”
While the deal value has been kept under wraps, sources claim that the acquisition cost
for 74% stake in the portfolio, with 813 MW of operating capacity, is a whopping $500
million. According to an Edelweiss Group release announcing the deal on March 25, the
strategic partnership is aimed at creating a high-quality solar platform of substantial
scale with a plan to add 2 gigawatt (GW) of solar assets in India over the next couple of
years.

With assets under management (AUM) of nearly ₹30,500 crore, EAAA focusses on
providing long-term growth capital to companies and projects, and EIYP is the largest
yield-focussed infrastructure AIF in India and the only platform owning and operating
assets in all three large infrastructure sectors—transmission, solar energy, and
highways.
The latest investment, which is believed to be the largest in the sector in the last 12
months, is in line with EIYP’s strategy to generate regular yields and create value for its
investors by taking controlling stake in quality operating infrastructure assets with
strong cash flows, the release added.
In value terms, the current deal, which is pegged to be over 40% of the total value of
investments through 2020, seems to indicate that the solar sector is getting a lot more
attractive. As such, February 2021 witnessed the country’s total solar installations
breaching the 40 GW mark. According to Mercom Capital Group, the capacity
comprised 34.9 GW of utility-scale solar installations, and 5.1 GW of rooftop solar
installations.
The central government’s target of 100 GW solar capacity by 2022 under the National
Solar Mission, which was revised upwards from 20 GW earlier, is possibly one of the
reasons that the sector is attracting investments. And, the aim of reducing dependence
on fossil fuels will also be a key driver for the alternative energy sector, where
burgeoning crude oil prices anyways add to the attractiveness.
 5.India’s e-commerce sector to touch $99 bn
by 2024
In 2020, e-commerce and consumer Internet companies raised over $8 billion in private
equity and venture capital funding spread over 400 deals, says EY-IVCA India Trend Book
2021 report.
 The country’s e-commerce sector is expected to reach $99 billion by 2024, growing at a
CAGR of 27% over 2019-24, with grocery and fashion/apparel likely to be the key
drivers of incremental growth, finds the EY-IVCA India Trend Book 2021 report.
The EY report, released in collaboration with the Indian Private Equity and Venture
Capital Association, adds that online penetration of retail is expected to reach 10.7% by
2024, versus 4.7% in 2019, while online shoppers in India are expected to reach 220
million by 2025.
The report further points out that the Covid-19 pandemic has brought forward the e-
commerce industry in India by a decade, revolutionising the way brands operate, run,
and grow their businesses, as well as how consumers choose to shop and pay.
According to the report, last year, India’s edtech startups raised over $2.2 billion in
funding with Bengaluru-based Byju’s alone accounting for $1.4 billion in funds raised.
The pandemic has accelerated the growth of the edtech sector in India as the market size
is estimated to grow 3.7x in the next five years, from $2.8 billion in 2020 to $10.4 billion
by 2025.
In 2020, e-commerce and consumer Internet companies raised over $8 billion in
private equity/venture capital funding spread over 400 deals, the report notes, adding
that edtech and hyperlocal segments led the investment activity, together accounting for
over 40% of 2020 investments.
The growth projected in the sector, certainly augurs well for not only companies but also
investors, the report adds, pointing to a new class of angel investors comprising
experienced professionals and successful entrepreneurs who are investing alongside
institutional investors.
 6.Investors bet big on India’s growth story
Last year was tough for entrepreneurs worldwide as the Covid-19 pandemic wreaked
havoc on businesses everywhere. But it hasn’t stopped global investors from
cherrypicking opportunities and parking their money in Indian businesses which offer
good returns. The numbers tell a story. According to management consulting firm
Praxis Global Alliance’s latest report, in 2020, Indian companies recorded venture
capital (VC) and private equity (PE) funding infusions worth a whopping $41 billion,
which was spread across 831 deals.
In the education technology space, Bengaluru-based Byju’s alone raised over $1 billion
in equity funding last year.
However, the study also pointed out that the number of exits were lower last year at 148,
worth $5.1 billion, down from 197 exits worth $9.2 billion in 2019.
“Indian private market is going strong with a record investment of $41 billion in 2020
despite Covid-19. India’s private equity and venture capital landscape has truly matured
and has proven resilient in fuelling India’s economic growth,” said Madhur Singhal,
managing partner and CEO, Praxis Global Alliance, adding that the report includes
insights and data from over 125 PE/VC investors.
According to the report, investors expect technology and the Internet (consumer apps),
healthcare, life sciences, SaaS, cloud, artificial intelligence, and analytics to become
more attractive for potential funding institutions in the next few years.
The study further added that 43 Indian companies raised $3.6 billion in public markets
last year compared to $1.8 billion in 2019.
 7. At $10bn, PE-VCs put 8x more in oct
Chennai: The value of PE-VC investments grew almost 8x yeakon-year in October as
private markets continued to attract global liquidity and enjoy tailwinds of Covid-
induced digitisation. Last month saw PE-VC firms invest record highs of $10.2 billion
across 117 deals in Indian enterprises compared to $1.8 billion across 68 deals in the
same month last year, according to data from Venture Intelligence.

The month's investment value grew almost 2.5 xs sequentially from September, which
recorded $4.2 billion in funding. October recorded the highest monthly investment tally
for calendar year 2021. During January to October of 2021, PE-VC firms have already
invested a total of almost $60 billion compared to $40 billion in the whole of 2020.
While Hexaware's $3-billion investment from Carlyle and Tata Group's fundraise of $1
billion for its EV business contributed 40% of the month's total tally, investments by PE
firms in new IPL franchises also made up around $1.7 billion of the total value as CESC
Ventures poured $946 million in the Lucknow franchise and CVC Capital invested $751
million in the Ahmedabad team.

The number of mega deals (deals over $100 million in value) grew 5x in October to 19
compared to 4 in the same month last year and 10 in September. Private markets are
enjoying the momenturn of a hot funding market which has led to a marked rise in
average deal sizes across stages and we have also seen consumer tech startups close
large and multiple rounds in the year in follow-on funding, Arun Natarajan, founder and
MD, Venture Intelligence, said. As per Venture Intelligence's data, average deal size at
the growth stage (Series C to Series D funding of institutional investments) grew to $10
million in October from $6 million in the same period last year. Similarly, late stage
companies continue to gain the most out of the unprecedented rise in liquidity.
Investments in such firms clocked $1.6 billion in October, a 4X rise from September.
Byju's, for instance, has raised across three deals this year. Social commerce startup
Meesho has seen its valuation double in less than six months as it raised almost $870
million this year. IT/ITeS businesses emerged as the biggest gainers of the tailwinds of
the pandemic and made up almost 60% of the total investment by PE-VC firms in
October at $5.9 billion.
 8. Venture capital firms turn to India with
China’s tech crackdown
New Delhi: Venture capital investors have a new favorite developing market.
The value of venture deals in India surged to $7.9 billion in July, while China
investments plummeted to $4.8 billion.

That's the first time the South Asian nation has surpassed its larger neighbor on a
monthly basis since 2013, the firm said. caveats apply. One month of data may have
limited significance since venture deal-making tends to be lumpy with bursts of activity
followed by periods of lull. China had already topped $65 billion in the first half of the
year, suggesting its total for 2021 will likely exceed India's.

Still the countries appear to be moving in opposite directions. Startups in India are
going public to fervent demand food delivery app Zomato Ltd has soared about 75%
since its debut eight days ago signaling the opportunity for profit.

Global investors are increasingly excited about the potential for Indian companies
competing in India and in other markets around the world.

The July total for India was boosted by a $3.6 billion funding round by Flipkart, the e-
commerce giant controlled by Walmart Inc. The investment valued the business at $37.6
billion, as it prepares for a potential IPO in 2022. China saw a flurry of deals in June just
ahead of the decline. Preqin said the last time India surpassed China in venture
fundraising, in 2013, it also involved a Flipkart deal.