Venture capital industry moving towards maturity: Bain-IVCA report

The Indian venture capital industry is showing signs of maturity with the focus turning towards quality of deals clinched rather than mere quantity, a new report says.

The report titled “Perspectives on the Indian VC Ecosystem, 2018” has been jointly prepared by Bain & Company and the Indian Private Equity and Venture Capital Association (IVCA).

A key finding of the report is that the overall fund-raising environment is robust with $10 billion worth of India-focussed funds having been raised since 2014.

This momentum is expected to become stronger in the future with multiple global Limited Partners viewing India as an attractive VC investment destination.

It also highlighted that venture capital deal value grew five-fold in the last 10 years. Sanjay Nath, co-chair, VC Council and Executive Council Member at IVCA, and Managing Partner, Blume Ventures, said: “Data from the report point to one thing — that these are the best times to ‘on-shore the offshore pools of capital in India’, based on the mature startup ecosystem, increasing exits and regulatory support by the government”.

Arpan Sheth, Partner, Bain & Company, and an author of the report, said: “The Indian VC industry is maturing, and you can find proof of funds going after fewer, but better-quality deals after building their initial portfolio.”

Focus on investments

The report comprehensively assesses the Indian VC industry and covers key trends shaping the industry with respect to the investment landscape, the start-up ecosystem, and the evolving supporting regulatory framework. It may be recalled that the Indian VC industry has gone through two distinct phases in the last decade. It went through a “scale-up” phase that lasted until 2015, in which the focus was on doing more deals leveraging a booming start-up environment.

However, over the last couple of years, the industry has matured, and the focus has shifted to placing selective bets on fewer investments.

Bigger VCs have accordingly shifted their focus to later-stage investments, with many new smaller VCs playing in the seed/Series-A stage.

Growth in sectors

Investments by Indian corporate VCs have also seen a four-fold increase over the last five years, and are expected to grow further in the future. In terms of sector focus, Consumer Technology expectedly dominated the VC landscape and accounted for 40-50 per cent of the investments in the last couple of years.

While almost all large funds have exposure to Consumer Tech, investments have diversified from horizontal e-tailers to more vertical-focused investments in areas like fintech, ed-tech, food-tech and online travel aggregation (OTAs).

The report also says that there will be increasing focus on IT and Enterprise Tech investments, specifically on SaaS/ Analytics B2B products (against the focus on ‘services’ until a few years ago).

VCs in India have seen some early success as well, with 5-15 per cent of the start-ups funded by the larger VCs going on to raise over $100 million.

The exit momentum has also picked up in the last few years with $4 billion worth of exits in 2017, and the industry has seen multiple big-ticket exits recently.

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