Indian VC industry sees record $10B investment in 2019: report

The Indian venture capital industry invested record $10 billion in 2019, driven by increased deal volume and larger average deal sizes, according to a report.

The amount was 55 percent higher than the money invested by the industry in 2018, the report by Bain & Company's India Venture Capital Report 2020 said.

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At the current exchange rate, $10 billion translates to over Rs 72,000 crore.

The report, in partnership with Indian Private Equity & Venture Capital Association (IVCA), said there has been 30 percent increase in deal volume and 20 percent rise in average deal size in 2019 over the previous year.

"Despite substantial capital deployment, dry powder availability for VC investing in India was at an all-time high of $7 billion at the end of 2019, indicating likely continued investment activity in 2020," it added.

The term 'dry powder' refers to cash reserves kept on hand by a company, venture capital firm, or individual to cover future obligations.

The VC exit momentum in 2019 was in line with 2018, with secondary sales leading the mode of exits in India with an average exit value of around $39 million.

"Despite the global economic climate, India's startup and VC ecosystems continue to thrive as investors take a long- term view based on the country's growth potential. We go into 2020 with record-high levels of dry powder, counter-balanced with caution, and an underlying optimism in the long-term potential for the ecosystem," Arpan Sheth, Partner at Bain & Company, said.

About 80 percent of the VC investments in 2019 was concentrated in four sectors -- consumer tech, software/ SaaS, fintech and B2B commerce and tech.

Consumer tech continued to be the largest sector, accounting for approximately 35 percent of the total investments with several scale deals exceeding $150 million, the report said.

Within consumer tech, verticalised ecommerce companies continued to be the largest sub-segment. In addition, there were increased investments in healthtech, foodtech, and edtech as well.

"The Indian VC industry had a landmark year in 2019. However, India-focused VC investments raised less funds this year, the fundraising outlook for 2020 remains positive among both LPs and GPs (Limited Partners and General Partners)," Sriwatsan Krishnan, Partner at Bain & Company and co-author of the report, said.

Following the brief moderation between 2015 and 2017, the VC industry in India has been in a renewed growth phase and that is expected to continue, Krishnan added.

The Indian startup ecosystem, one of the top five globally, continued to remain robust and grow rapidly. Between 2012 and 2019, the number of startups in India increased 17 percent each year, while funded startups increased faster at 19 percent CAGR in the same period, the report said.

Currently, of almost 80,000 startups in India, only about 8 percent are funded, indicating room for investments, it added.

The report said India-focused VC funds raised about $2.1 billion in 2019, slightly lower than that in 2018.

The dip was the result of marquee funds that had already raised large sums and hence did not go to the market in 2019, it added.

"There is a massive pipeline of soon-to-be unicorns; few of the Indian unicorns will become decacorns by 2025. All this could not have happened without the support of the current government and the exits driven by first-generation entrepreneurs in the last couple of years," IVCA President Rajat Tandon said.