Executive summary:

2022 so far…

  • H1 2022 deal volumes in the private equity mid-market space, overall, have grown 43% vs. H1 2021[1]
  • So far, the heady enthusiasm for technology investments that reached ‘fever pitch’ in 2021 (c.130% increase in CY2021 vs 2020), has been sustained (c. 87% of deal volume in H1 2022 vs c.86% in H1 2021) [2]
  • The initially strong sentiments in public[3] and private markets in Q1 2022 sobered in Q2 2022,[4] with rising geopolitical uncertainty and a potentially looming global recession. Despite this uncertainty, the Indian mid-market PE/VC space continues to show sustained activity (as illustrated in the charts below)

Driving activity for the remainder of 2022…

  • Digital adoption remains strong as the economy emerges from the impact of Covid
    • Key themes of 2021 continued to play out in H1 2022 as deal activity showed sustained growth
  • Indian Tech ecosystem shows signs of maturity as key sectors – Consumer and SaaS - pick up pace
    • Both sub-sectors saw ample deal activity as investors doubled down on ‘made-in-India’ digital products and services
  • Two distinct phases in deal activity for H1 2022
    • Q1 2022 showed signs of a spill over effect from last year’s heady activity (as noted in our last two reports[5]). Q2 saw a tapering as broader market sentiments saw a reversal
  • Investors rebasing expectations as public markets correct
    • Investors are signalling a preference for high quality assets and an increasing focus on profitability
  • New unicorn additions continued at the same pace as in 2021, but is likely to slow in H2 2022
    • While the number of unicorns is increasing, the declining rate of additions suggests tougher times ahead for mid and late-stage start-ups
  • IPOs have taken a backseat as recently listed start-ups underperform
    • Tech IPOs, which saw a frenzy of activity last year, have delivered a disappointing performance for investors (See fig 3); We expect limited movement in IPO markets in the near term as investors try to rebuild conviction on digital stocks
  • PE & VC investor dry powder at an all-time high; growth/late-stage PE and VC’s in the spotlight as most hedge funds have reduced their pace of deployment
    • With hedge funds shifting focus to public markets, we expect that growth/late-stage PE and late-stage VC investors, who are sitting on a large amount of dry powder, will have ample opportunities to deploy capital and are likely to increase their relative market share, at the same time given global volatility despite this level of dry power, we expect funding activity to come down in H2 of 2022 with a full bounce back only expected once global market volatility settles down. 

Our outlook for H2 2022

Tech sector to see a shift in deal activity from funding to more M&As

  • With record dealmaking in 2021 (see fig 4), we believe a shakeout within PE/VC deals in the tech sector was long overdue and expect a lot more consolidation in the market going forward, as M&A deals overall pick up momentum
  • Unlike in the past, where it was largely distressed stock M&As in the digital space, with the growing appetite of larger conglomerates, listed players & well-funded unicorns, we expect to see a lot more ‘for-cash’ M&As

High quality companies will reap the rewards

  • High-quality companies with strong fundamentals and profitability will likely continue to see interest and are we do not expect them to be materially impacted by the broader slowdown, as investors are likely to remain bullish on the India growth story and will likely prioritize quality and profitability over last years’ growth at all costs. Furthermore, operationally profitable companies inherently have the option to sit-out the current market volatility and only raise capital if they receive strong inbound interest or alternatively just defer their fundraising till the market has settled down
  • However, for those companies that are not able to quickly improve their unit economics and are in dire need for capital, they will likely experience a much more discerning funding environment. For these companies either a flat or modest down road will be their best-case scenario with several of these likely to get pushed into a fire sale or liquidation processes

These ‘market corrections’ are not sticky

  • Historically, we have observed that such slowdowns/market corrections have typically not lasted more than 6 quarters (see fig 1). Hence under the assumption that global inflation will come under control during the next 4 quarters, we have no reason to believe that the current markets would be any different
  • In our view, in particular if global inflation moderates quickly, the market is likely to revive much sooner, possibly as early as H1 2023, as investors balance risk mitigation with capital deployment pressures
  • A few positive events in the near future such as a strong listing for a digital-first company could have a domino effect and bring enthusiasm back to the market quicker than we all anticipate

Fig 1 – S&P 500 correction trends

Note: Above table shows correction length in the S&P500 index in calendar days between the year 1950 and 2022; Red represents a period of more than 365 days, yellow represents a period of 180 to 365 days & green represents a period of less than 180 days; Source: Yardeni Research[6]

A quick recap of H1 2022 private equity activity

  • The first half of 2022 saw sustained growth in PE and VC deal volumes/value, with a 50% and 24% YoY increase, respectively, vs H1 2021,[7] (see fig 4) as key themes for 2021 – ‘digital’ and ‘recovery from Covid-19’ played out with the complete re-opening of the economy
  • The ‘coming of age’ of India’s increasingly global tech ecosystem could be seen most clearly in H1 2022 - with Consumer Internet and SaaS together contributing to c.55% of all transactions.[8] This highlights a growing demand for ‘made in India’ digitally enabled services in the post-pandemic age – and that trend, in our view, looks set to continue
  • A look at the two quarters independently, sheds deeper insight into drivers of deal activity in H1 2022:
    • Q1 2022 saw a continuation of the exuberance of 2021, with:
      • A complete reopening of the economy as Covid-19 cases declined and vaccination rates increased[9]
      • The spill-over of deal closures (and their subsequent announcements) from 2021, where term sheets were already signed in late 2021
      • A maturation of the Indian start-up ecosystem, with improving exit scenarios; several start-ups made their IPO debuts,[10] leading to increased investor confidence
      • The government’s renewed focus on rapid economic recovery as well as a strong push for digital initiatives to enable better inclusion across the country[11]
      • New domestic funds deploying capital at a rapid pace after having raised significant capital in 2021[12]
    • Q2 2022, however, saw a softening of activity (-39% over Q1 2022)[13] due to a variety of factors including:
      • Global inflation has been exacerbated by Russia’s invasion of Ukraine, driving up interest rates and increasing the cost of capital[14].Subsequently, we believe that investors have moved away from the ‘growth at all costs’ narrative, and allocating funds with more prudent criteria
      • Supply chain disruptions emerged as the intermittent resurgence of Covid-19 outbreaks took place in several countries
      • A general decline in market sentiment on account of corrections in the US markets, which started in December 2021; blue-chip tech stocks saw a significant decline - eroding the optimism investors had for technology companies, which saw premium valuations in 2021[15]
    • Investors are resetting their expectations as public market sentiments turn bearish
      • Deep corrections in the public markets[16] have resulted in a decline in multiples, creating an attractive opportunity for investors with dry powder
      • We have seen deals now taking longer to close than in 2021, and we are back in a market where positive unit economics[17] and path to profitability take precedence over ‘growth-at-all-costs’[18] and a ‘land grab’ for market share,
      • In our view, investors may stay away from ventures with low-quality fundamentals over the next few quarters, preferring to hold out for the ‘right deal at a reasonable price’
      • We expect high-quality companies to continue attracting investor interest, while low-quality companies could either fold into larger players or would continue to hold their course, if they were able to secure adequate capital during the 2021 frenzy to tie-over a pro-longed funding draught (see fig 2). Nonetheless, investors will even expect such companies to bring their house in order by cutting costs and retrenching people as required
    • In the technology & internet space, 18 companies were anointed as ‘unicorns’ in H1 2022, compared to 16 in H1 2021 (see below).[19] Interestingly these unicorns are increasingly being seen in the SaaS space. With the more modest growth in the number of unicorns this year, we expect that ‘soonicorn’ companies will find it more challenging to cross the threshold in the latter half of 2022 as investors become more discerning

Fig 2 - unicorn additions in H1 2022[20]


  • Tech & digital IPO activity in India has seen a clear decline in 2022
    • After a strong 2021 for Indian technology start-up IPOs,[21] H1 2022 saw only two start-ups debut in the India public markets[22]
    • We saw several large start-ups, such as Pharmeasy[23] that had filed their DRHPs last year in anticipation of their IPOs deciding to postpone their plans in light of market volatility[24]
    • The below table shows the performance of technology companies that went public since last year. It is evident that most are back to their listing price, with some significantly below that as well[25]. Given the sub-par tech IPO performance so far, we expect IPO activity to remain subdued in H2 2022

Fig 3 – IPO performance[26]

Note: All amounts in USD Mn, unless mentioned otherwise (FX Rate: INR 1 = USD 78)

  • While overall, growth/late-stage deals in the USD 100 – 500M range were up by c.24% in H1 2022, average deal sizes declined by c.9% over H1 2021[27]
  • Private equity buyouts in the mid-market segment continued to lag behind growth stage and minority investments, which accounted for c.96% of total transactions in the country. However, with the softening of growth investments, and exit pressures for some investors, we expect the share of PE buyouts to increase in the coming period
  • Foreign investor participation in Indian mid-market transactions saw a decline of c.19% in H1 2022 vs H1 2021, with most drop-offs seen in Q2 2022 (down by c.43% vs Q2 2021)[28] as appetite for high-risk ventures tapered with worsening macro sentiments
  • Sovereign wealth funds (SWFs) and pension funds which tend to focus on late stage, larger sized deals, increased their participation in mid-market growth deals last year. However, H1 2022 witnessed a c.25% decline in mid-market deals from SWFs and Pension funds as they sought flight to quality and an increased focus again on their sweet spot, i.e., later stage deals
  • Despite increasing concerns of a potential funding ‘winter’ in the mid-market space, there appears to be ample dry powder in the market
    • Funds had raised record amounts of capital in 2021[29] - many of whom, we believe have seen stellar exits last year. Funds like Sequoia,[30] General Atlantic,[31] Advent International[32] continue to raise large, specialised funds to focus on Indian markets
    • There was also a general shift in focus of hedge funds to public markets as volatility rose; the likes of Tiger Global, appear to continue to look at early-stage deals in India but have seen significantly reduced actively in making fresh growth/late-stage investments[33]
    • In our view, growth and late-stage PE funds will look to take centre stage to deploy capital in the current markets given the reduced activity by hedge funds

Fig 4 - H1 2022 deals [34]

Source: Venture Intelligence Private Equity & Venture Capital Deals Database

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