Venture Capital: An Analysis of Investment and Exit Patterns of Indian Firms

Abstract

This article reviews investment and exit patterns in the Indian venture capital (VC) segment. In the last few years, the Indian economy has experienced a massive inflow of investment via the venture capital industry. Consequently, more than 4,000 start-up ventures have been funded by these investments. Venture capital investment is characterized as a driving force behind entrepreneurship development in emerging economies, and the economic growth of emerging economies gains momentum with the development of start-up firms. The study specifically focuses on venture capital investment as well as exit trends in India, covering 4,346 deals from January 1998 to December 2018. The authors find that as the number of deals rises, so too does the size of total investment. They document the industry-wise classification of Indian VC investment. The information technology (IT) and IT enabled services (ITES) industry holds 58.49% of the total investment made since 1998. On the other side, VC firms have exited mainly through either IPOs or by mergers and acquisitions. The exit data show a similar pattern as the investment data, with most of the exits in the IT and ITES industry.

TOPICS: Private equity, emerging markets

Key Findings

• ▪ Venture capital investment in India has shown remarkable growth since the 2012 Securities and Exchange Board of India (SEBI) Alternative Investment Funds Regulation. However, exits are more than double investments.

• ▪ The number of deals in the venture capital segment is on the high end; consequently, the total investment size has shown significant growth.

• ▪ Investment pattern shows that a few sectors— such as IT and ITES, banking, financial services, and insurance (BFSI), and healthcare—emerged as strong contestants for investment and investors’ preferred pick.