PE-VC exits from Indian companies at two-year high after Covid-19 setback

Vani Kola, managing director of Kalaari Capital, recently wrote a blog on LinkedIn thanking Harsh Jain and Bhavit Sheth, founder of Dream 11, for allowing the venture capitals (VCs) to play a part in the start-up’s journey. “Starting with a Series A investment, you have already returned $206 million to our limited partners (LPs), with upside potential to the tune of multiple folds for our shares still locked into the company; thank you for that,” she wrote.

This is not just the case of Kalaari Capital. Covid-led disruptions that stalled exit plans in early 2020 for many PE and VC players is now gaining speed. The first quarter of 2021 saw the highest number of exits, both in terms of value and volume, in the past five quarters.

The January-March quarter of 2021 saw 27 exits raking in over $1.1 billion in returns for investors, who either exited partially or completely, according to data sourced from Venture Intelligence. The last time a similar momentum of exit was seen only in the July-September period of 2019 when a total of 22 exit deals took place, which raised around $1.9 billion worth of returns for early investors.

The PE-VC ecosystem in India is now over a decade old with billions of dollars making their way. “Now it’s time for players to make billions of dollars making their way out. It’s going to be the golden decade of exits,” said Trifecta Capital co-founder and managing partner Rahul Khanna.  Dream Sports, the parent of Dream11, in March raised $400 million in a secondary funding round at close to $5 billion valuation, giving partial exit to early investors such as Kalaari. IPO-led exit option is becoming a highly lucrative exit route for VCs this year. In the past few months, there are reports that the cohort of late stage start-ups such as Zomato, Policybazaar, and InMobi are opening a window to liquidity via IPO.

In January, WestBridge Capital, which had backed the now-listed Nazara Technologies at a very early stage in 2005, sold shares worth over Rs 500 crore to Plutus Wealth Management in a complete exit from the gaming company. It had invested Rs 22.6 crore in Nazara, receiving big-bang returns.  “This year will be the best in five years on the growth of funding and exits in technology companies. We have seen the IPO of Nazara, with many others to soon follow. India is on the top of every financial institution in the world at the moment,” said Anup Jain, managing partner of Orios Venture Partners, an early stage VC with investment in companies such as PharmEasy, Country Delight, and Yumlane.

During the pandemic, most companies in the tech ecosystem stayed extremely resilient and strengthened their business models. As a result, most digital businesses are doing well. “Exits are an outcome of maturity of start-ups and the ecosystem — as number of these start-ups keep growing fast and more efficiently the exit environment will also improve,” said Mridul Arora, MD of Elevation Capital.

Start-ups which are category leaders will maintain momentum with sustainable business models and cash reserves. Those who have shown resilience and pivoted their business model to sustain operations are attracting investors as they are focused on business model scalability and good unit economics. “We can expect an upswing in founders looking to raise funds or provide exits, specifically the ones who paused fundraise last year considering valuation haircuts or depressed market conditions,” explained Ankur Bansal, co-founder and director of venture debt fund BlackSoil.

According to Blume Ventures, the overall trends in the ecosystem are very welcoming. “I would definitely like to wait for a few more quarters before concluding that this is a systemic shift and we are now in a larger orbit. The key success indicators would be a sustained flow of companies getting to list on the exchanges, holding to their grey market premiums pre-listing and appreciating therefrom. We also need Indian investors and corporates to join the start-up party for the growth to be sustainable,” said Ashish Fafadia, partner, Blume Ventures.

Industry expects to see a continued momentum in business growth and certainly a new normal as far as consumers’ online buying behaviour is concerned. “Opening up of the lockdowns and progressive vaccination will ensure more mobility and offline business models reviving as well, but we believe habit formation in terms of digital buying will ensure growth continues for the sector,” said Arora of Elevation Capital, which has around seven unicorns in its portfolio such as Paytm, Unacademy, and Swiggy.