 "Riding fast on the e-way")
Revenue multiples for e-commerce investments are the highest overall (10.19), followed by that of IT&ITES (4.8) and revenue multiple for early stage investments were higher than that of the growth and late stage, according to 7th Annual Report on the Indian Venture Capital and PE industry, which was released today.
The report also stated investors are now looking at structured investment, rather than going for straight equity.
Average valuation of growth stage investments increased from Rs 357 crore in the 2010-2012 period to Rs 932 crore during 2013-15, an increase of 2.61 times, whereas 15 year CAGR for valuation in the growth stage around 14 per cent. Early stage valuations, on the other hand has gradually decreased from Rs 79 crore in 2001-2003 to Rs 50 crore in 2013 - 15.
ThillaiRajan, Professor, IIT Madras, who was instrumental for the report, said that valuations have increased over time. Early stage enterprise valuations have not changed much, in fact it has a little bit reduced in the last five years. But in the growth stage enterprise valuation has increased by around 160 per cent. Bulk of the increase is happening in the late stage companies. Average enterprise valuation in the late stage has increased close to 500 per cent.
Average enterprise valuation of late stage companies rose from Rs 881 crore in 2010-2012 period to Rs 5,095 crore during 2013-15, i.e., an increase of 5.78 times. If we look at a 15 year period, the CAGR of enterprise valuation of late stage investments has been around 20 percent.
Average valuation of growth stage investments increased from Rs 357 crore in the 2010-2012 period to Rs 932 crore during 2013-15, i.e., an increase of 2.61 times, whereas 15 year CAGR for valuation in the growth stage around 14 percent.
Early stage valuations, on the other hand has gradually decreased with time, from Rs 79 crore in 2001-03 to Rs 50 crore in 2013-15..
The increase in enterprise value is not across the board and only on one segment of it, and even within that, it is only for one particular sector, which is internet market place and e-commerce. Manufacturing and FMCG have not seen this kind of dramatic increase in valuation.
For the last five years, the e-commerce valuations have increased by 167 per cent, followed by health care and life sciences around 40 per cent, IT & ITeS around 30 per cent.
He said, age, at which companies are getting funding, has been reducing. Companies are getting funded much quicker in the early stage. Fifteen years ago, average time when you go for early stage funding was five years, which has now come down to one year now. Entrepreneurs are getting funding much quicker.
But investors are getting more uncertainties and to reduce risk they are resorting more to structured investments.
Generally VCs go for pure equity investments, but in the recent days they are opting for preference shares or convertibles, which gives the investors more protection rather than common shares.
Earlier, around 95-99 per cent of investments were in common shares, i.e. straight equity, which has come down to 15-18 per cent now. These instruments helps them to adjust the valuation of the company based on the performance they have made.
On way forward, he said, correction will start soon if not started and next round of fund raising will be difficult for the ventures, which may have to look for public markets and for that you need be profitable.
