India-focused funds on road to raising around $9.8 bn in CY22: Data

18 funds have already raised $1.74 bn; Asia dry powder pegged at $173.4 bn

India, which has turned out to be a fast-growing unicorn marketplace, is prodding venture capital (VC) funds to help raise further capital. According to Preqin, an alternative assets data and intelligence platform, India-focused funds are raising about $9.8 billion for the calendar year 2022. However, closure of the funds is taking time.

While $9.8 billion is the target for the year,18 India-focused funds have already raised $1.74 billion. But what is more substantial is the fact that Asia-focused dry powder is $173.4 billion. This shows that funds for investment are not an issue when Asia or India is concerned.

The interesting thing in the fund-raise is an increase in the fund size. Preqin data shows that the average size of funds is up 18 per cent from pre-Covid levels and up 52 per cent from 2020. Year 2021 was an aberration when it comes to fund-raise.

“Funds continue to participate in India fundraising due to its market attractiveness and the fact that most VCs have fully deployed their earlier funds. They need to raise for the future,” says Sriwatsan Krishnan, partner, Bain & Company.But he also clarifies that this does not mean that the mad rush of funding during 2021 will continue. “Increase in rates by the Fed will have some impact on allocation of funds to emerging markets. However, more importantly, the recessionary environment will make investment teams, particularly of global funds, cautious.”

This seems to be one of the reasons for the funds to take time for closure. According to Preqin, the average time spent on the road by India-focused VC funds is 17.6 months compared to the earlier 14.46 months.

Some other reasons for the interest in India are stringent rules in China. “Year 2021 saw a huge fund infusion in the India start-up ecosystem. Total funding was above $40 billion. So, VCs will have to hit the road, especially those who now want to participate in growth and late-stage firms. Also, with the global uncertainty, funds want to have dry powder to support their own investments,” said an executive from a VC fund.

Industry experts said investment would flow into late-stage and growth-stage companies but the speculative early-stage ones would see a slowdown. It is not just India but the entire South-East Asia region, which has suddenly managed to grab investor attention.

For instance, Sequoia closed its $2.8- billion SE Asia-focused fund recently. Though $2 billion is marked for India, it also launched its first SE Asia fund of $850 million. A few months before Sequoia, Singapore based-Jungle Ventures closed its fourth SE Asia and India fund with $600 million in its kitty.

In one of the reports by TechCrunch, the VC said that one of the focus areas will be decentralisation and equitable internet. movement. This means Web3, social commerce and small and medium enterprise (SME) technology digitisation.