Executive summary: 2021 trends

  • Global excess liquidity, and multiple stimulus measures from the Indian government, such as liquidity infusion in the banking sector by RBI and direct cash transfers[2], have taken the Indian public[3] and private financial markets[4] to record new highs
  • We have seen ‘digital’ and ‘technology’ as key themes for transactions in 2021, with deal values in these sectors at record-breaking levels[5]
  • India has long been at the forefront of the global tech revolution. In 2021, global rankings for venture funding recognised India’s strong start-up economy and saw it ranked 3rd, only behind the US and China.[6] The current state of India’s economy on the world stage is reminiscent of where China was c.10 years ago[7] and has strong potential to significantly expand. We therefore expect to see strong long-term growth potential both for Tech PE/VC investing and M&A in India and expect sustained deal momentum in 2022. That said, should the January 2022 correction in public market Tech valuations in the US and India continue, we believe it may negatively impact Tech deal momentum in the second half of 2022

Source: see here [7]

  • We have seen China shift its focus to domestic activity in 2021, by introducing legislation largely aimed at the tech sector.[8] As a result, the spotlight has shifted to India as a preferred destination for venture investments[9]
  • The above long-term shifts, combined with a constructive role being played by the government to foster start-up innovation through accelerators and seed funding schemes,[10] has resulted in a high number of transactions. This has been driven by digitally accelerated sectors, such as fintech, edtech, healthtech and Software as a Service (SaaS), which continue to benefit from strong tailwinds. India produced 44 new unicorns in 2021 alone, compared to only 37 between 2011-2020.[11] Despite India’s long history, there are only 288 listed companies in India with a market capitalization greater than USD 1BN.[12] This influx of unicorns has been more broad-based as the country’s maturing ecosystem moves beyond consumer apps - we expect more unicorns to emerge from new categories
  • In 2021, there were 11 India-based start-ups listed in the public markets, with seven having a stellar debut.[13] This has instilled confidence in investors, and a large number of Indian start-ups have initiated their IPO filing process. And so, we believe, if investor confidence remains strong, India is likely to see a record number of IPOs in 2022. However, we expect a more hawkish monetary policy by the Fed could result in IPO volumes tapering off in the second half of 2022  
  • Widespread digital adoption has also allowed companies to attract large primary investments, underpinned by the massive opportunity and availability of sizeable sub-sector market leaders. The number of growth-stage and late-stage funding transactions between USD 100–500M almost tripled to 92 in 2021,[14] compared to 33 in 2020 and 43 in 2019[15] and whilst the underlying digital adoption and economic growth tailwinds remain very positive, it is also going to be a function of Fed policy and US public market Tech sentiment whether this record number of late-stage funding transaction will be beaten in 2022
  • Additionally, with public listing on the cards for many start-ups, companies raised pre-IPO funding rounds to USD 1.3BN in 2021[16] and we expect this trend to continue in 2022
  • Tiger Global, Sequoia Capital and Falcon Edge Capital continue to be the three most active investors in H2 2021 and drove c.40% of mid-market transactions[17]

Below is a summary of the companies that achieved unicorn status in H2 2021[18]:

 

Private equity activity: H2 2021

  • The second half of 2021 saw the continued sharp uptick in PE and VC transaction volumes (175%) and value (249%), respectively,[19] compared to the same period in 2020[20] (as shown in the charts below). This increase in activity reflects the return of investor confidence and appetite as macro cues turned favourable:
    • Quicker economic recovery and return of domestic consumption, marked by record high Diwali spending for 2021[21]
    • A steady rise in the Covid-19 vaccination rate, with a decline in transmission levels instilling both buyer and investor confidence
    • Continued infrastructure spending by the Indian government in line with the stimulus proposed in the budget for 2021[22]
    • Excess liquidity and overall buoyancy in global financial markets injected into the financial systems by way of fiscal and monetary stimulus[23]

Source: Venture Intelligence Private Equity & Venture Capital Deals Database[24]

  • The two most active sectors in H2 2021 were internet and fintech, contributing to c.65% of transactions,[25] which we believe reflects the significant growth opportunities available through the rapid adoption of financial and digital services mentioned above. This trend has continued, with the deal value in these two sectors growing three to four times in H2 2021 compared to H2 2020[26] and we expect this momentum to remain in 2022
  • Private equity buyouts continued to be less frequent as growth-stage investments took the lead[27] - again, we expect to see this trend continue into this year

Source: Venture Intelligence Private Equity & Venture Capital Deals Database[28]

 

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