Domestic PE/VC funds corner 23% of H1 deal value, shows data

Venture capital funds, private equity firms, and family offices based in India invested $6.3 billion during January-June, which gives them 22.8 per cent of the value of all deals sealed in the first half of this calendar year. This is their highest share in four years, according to data from Venture Intelligence-Indian Venture and Alternate Capital Association (IVCA).
 

This data includes only the fund houses headquartered in India and none based overseas even if it is India-focused.
 

Domestic fund houses were subdued during the pandemic years. In the first half of 2021, they invested $3.3 billion, just about half of the amount this year, for a share of 13.8 per cent. Even that was an improvement from the first half of 2020, the period of the first Covid-induced lockdown, when they invested just $2.3 billion, resulting in an 11.27 per cent share of the total. The year before — 2019 — domestic funds had invested $2.8 billion in the first six months for a 16.3 per cent share of the total.
 

This shows the coming-of-age of the domestic players, their confidence also reflected in the funds being raised. Of the total India-focused funds worth $6 billion raised in the first half of 2022, as much as 74 per cent is by funds headquartered in India, says Venture Intelligence.

In contrast, overseas players have chosen to play safe. “With the fears of recession rising, global PEs have preferred to go back to the comfort of their own markets. That place is being filled by domestic capital,” says Karthik Reddy, the co-founder of Blume Ventures and vice-chairman of IVCA. Fund managers say the big boys, such as Tiger Global and Softbank — both grappling with issues — have reduced their activities in India. On the other hand, the strong regulatory framework has encouraged seasoned fund managers to come back to India and set up shop here. The opening up of an attractive IPO route has helped.

“We are also seeing some rationalisation of taxes, such as between capital gains tax for selling in the stock market and by PE investors, which is still around 2.4 times higher,” says Siddharth Pai, the founding partner of 3one4 Capital.    However, most of the capital for domestic funds still comes in dollars, with only 15-20 per cent coming as Indian money, though Blume says half of its fourth fund was raised from domestic capital. Fund managers also point out that the average deal size for domestic players is much smaller than the cheques MNCs write.
 

In the first half this year, domestic funds averaged $8.09 million per deal. The figure for their overseas counterparts was $17.4 million a deal.
 

This gap is narrowing: overseas funds’ average deal size was four times that of the domestic funds in the first half of 2021.