PE, Sovereign funds making larger investments in Indian tech firms

Private Equity (PE) funds and sovereign funds are making more investments in India's tech companies after the slowdown from hedge funds and momentum investors like SoftBank and Tiger Global. Recently, Advent International has closed in on an investment in KreditBee, according to a report by Economic Times (ET).

Advent may provide $100 million to KreditBee which will take its valuation to $600 million, the report added. 

PE funds like Advent, TPG, Temasek and GIC have sped up their investments in India with larger cheques of $100 million or more. Till 2021, late-stage investment rounds were typically raised by funds like Tiger Global, SoftBank, and Naspers. 

The ET report further added that PE funds subject the companies to closer scrutiny as compared to hedge funds. 

“While there has been a slowdown in investments from hedge funds, momentum investors and crossover funds, PE funds have continued to back companies this year as well…,” said Karan Sharma, executive director, co-head, digital & technology investment banking, Avendus told ET, “One key factor has been the evolution of business fundamentals and positive unit economics, and some businesses achieving corporate profitability or core business profitability. This gives significant comfort to such investors who seek to protect the capital invested and expect a 3-5x return there on.”

He further expects an increase in activity from PE funds. 

One of the reasons for this is the availability of long patient capital with the PE funds. With this, PE funds can bring the cost of availability of loans down as compared to hedge funds. 

TPG had earlier successfully invested in retailers like Lenskart and Nykaa. In the US, it has invested in firms like Uber and Airbnb. 

"This year, PEs have stood out because they’ve continued their pace, unlike the tech-focused funds, which have slowed down immensely... These will become even more aggressive if valuations taper off in India like they have in US tech, or if the market turns and becomes more bullish and everyone has deployment pressure," an investor was quoted in the report as saying.