Startups Key Focus For Private Equity Investors And Venture Capitalists

Startups continue to attract the highest investment from private equity (PE) and venture capitalists (VC) in 2016, but the value of deals declined by more than 50 percent this year, according to a recent report.

According to the Grant Thornton India's The Fourth Wheel 2017 report, produced in association with Indian Private Equity and Venture Capital Association (IVCA), startups received the maximum investment of $2.5 billion and constitutes 70 percent of the transaction volumes in 2016. But the value of deals slumped, signifying rationalisation of investments and startup valuations.

However, the government's push on digitisation and initiatives under the Startup India plan may lead a rebound in this segment, according to Grant Thornton.

Other sectors, besides startups, which saw the highest number of transactions were telecom, banking and financial services, real estate, information technology/information technology-enabled services (IT/ITeS) and manufacturing. These sectors along with startups contributed around 78 percent to the overall deal value in 2016.

The report further said both value and volumes of PE and VC investments were lower in 2016 due to the lack of big-ticket investments that were made in the previous year.

Overall, investors pumped in $14 billion in 971 deals in 2016 compared to $16 billion in 1,045 deals in 2015, registering the first decline in the PE activity in the last four years.

"Although 2016 saw a decline in the PE activity, we are hopeful for 2017," Harish HV, Partner – India Leadership team at Grant Thornton India said, adding it could be the year of reckoning for the country where implementation of structural policies and reforms such as the GST and the recently announced measures in the Union Budget 2017 will drive growth.

Moreover, expected improvements in the banking sector, pick-up in rural demand post demonetisation, a robust primary market and improving capacity utilisations across industries are likely to drive domestic economic activity.

"Amidst global uncertainties arising due to Brexit, protectionist policies proposed by the U.S. and a slowing Chinese economy, India continues to be the bright spot. India is likely to drive resilient growth in deal activity in 2017," he said.