PE/VC investments declined by a third to $54.2B in 2022

Investments by private equity and venture capital funds declined by nearly a third to $54.2 billion in 2022, which was characterised by a 'funding winter' after consecutive years of surge.

Even after the decline, the year was the second best for India in terms of bets taken by such long-term investors on growing Indian companies, a report by industry lobby IVCA and the consultancy firm EY said.

The investments by value were down 29% as compared to $75.9 billion in 2021, while by volumes there was a 4.6% decline at 1,211 transactions as against 1,269, the report said, adding that a sharp fall in large deals resulted in the decline.

The firm's partner Vivek Soni said investor interest has been weighed down by inflation woes, recession fears, the rising cost of capital and elevated levels of uncertainty driven by geostrategic challenges.

He added that 99 funds dedicated to India raised $17.4 billion in 2022, and there is a high level of dry powder available globally, which has the potential for a rebound in activity.

"We expect the startup space to continue receiving large investments, albeit at valuation multiples lower than 2021. There is high likelihood that Indian PE/VC investments in 2023 shall be meaningfully more than 2022 levels," he said.

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Factors to watch out for in the future include headwinds like recession in the developed world, re-emergence of inflation, any flare-up in geo-political conflicts and potentially new and infectious COVID-19 variants.

In 2022, the financial services sector recorded the maximum interest both on value at $10.8 billion and volume terms with 249 deals, the report said.

On the front of exits, there was a 55% decline at $18.3 billion through 249 deals, it said, pointing out that the absence of large strategic and secondary deals caused it.