Private equity and venture capital investment may hit record $70 bn in 2021

Private equity and venture capital investment will hit a new high of $70 billion in the calendar year 2021, according to projections by Bain & Company which analyses trends in private equity investing.

Out of this, about half has flowed into just two sectors: consumer technology (e-commerce, edtech, fintech) and IT services and SaaS (software as a service) which has become an attractive business for investment and is expected to continue its dream run for the next two to three years  

“Last year, the total private equity and venture capital deals stood at $62 billion. Out of this, one company, Reliance, through funding in Jio and Reliance Retail, dominated the numbers ($26.5 billion),” said Aditya Shukla, partner, Bain & Company, Private Equity and Technology Practices. “But this year, we don’t have even one such big deal. However, we see a trend of overall growth.”  

Bain’s analysis also reveals that the top six funds in the country - Blackstone, Carlyle , GIC, Advent, Baring and Tiger Global - accounted for 20-25 per cent of the total deal value in 2021.  

Another positive trend is that the exits have also shown heady growth. This used to be an area of concern for many global private equity investors (they also were looking at returns) and a sore issue when it came to putting more money into India.

Bain projects that exits in the calendar year 2021 will be around three to four times those of last year when the total value of exits was $8.9 billion. The only other big year for exits was in 2018 when the number  hit over $32.9 billion owing to investors leaving Flipkart which was bought by Walmart.

Shukla points out that about a quarter of the exits in 2021 were in consumer technology companies such as Zomato, Urban Company, and Dream11, partly through the IPO route which was new and through other normal exits.

Apart from value, volumes or the number of deals have also gone up. 

According to VCCEdge which tracks this space, the total number of investment deals in 2021 to date hit 1,914, an increase of 35 per cent from last year’s figure of 1,416 and far higher than in the non-covid year of 2019 when it was 1564. 

Some of the private equity funds were brimming in deal volumes. Sequoia Capital India Advisors did 123 deals in 2021; Venture Catalysts Private Ltd hit 99 deals; and Tiger Global made 59 deals.    

SaaS is the big area to bet on for next year. In fact, companies like Tiger Global are betting big on it. Bain predicts that in the next two to three years, SaaS will be a key area for private equity investment.

“For SaaS companies, the end market is global so it’s very large. They are already working on gross margins of 70-80 per cent on Gross Merchandise Value, unlike in e-commerce where it was about discounting. Some of the companies already have EBIDTA of 40-50 per cent and have chosen to grow the business,” said Shukla.

What’s more, they also enjoy the advantage of dealing with Fortune 500 companies which have larger contracts which are sticky. And, contrary to expectation, they do not play only on price. In fact, some of them are category leaders in their product category while others offer competitive quality.