Venture capital (VC) deal value more than doubled to $26 billion in September this year, from $11 billion in the year earlier, according to a report by industry lobby, Indian Private Equity and Venture Capital Association (IVCA), and multinational research firm, Preqin.

Private equity (PE) represented the largest segment of Indian alternative assets with $31 billion assets under management (AUM), up by 2.3% from a year ago. Yet VC performance was neck-to-neck at $26 billion in aggregate deal value.

Even in 2020, the market had squeezed in an increase of 2.1% AUM since 2019, Preqin’s head of research, Ee Fai, said.

In 2020, PE and VC deal value rose to $61 billion AUM (assets under management) while the markets remained buoyant, “We see India’s absorptive capacity at $500 billion to $750 billion in the next five years,” IVCA’s chairperson Renuka Ramnath and founder of Multiples Alternate Asset Management, said.

Preqin’s research revealed the number of venture capital deals completed may be dropping off, but their size is increasing. “More international LPs are prioritising India as a key emerging market, a trend helped by a climate of uncertainty elsewhere in the Asia-Pacific region," Fai added.

The key sector for funding is tech with a market share of “at least $750 billion within a $4.5-5 trillion Indian economy by 2030,” the report projects.

With $15 billion worth of dry powder as of September 2021, the market is hot and the unicorns keep coming—edtech firm Byju’s; the e-commerce website Flipkart Pvt Ltd; and Licious, the meatpacking company owned by Delightful Gourmet Pvt Ltd—which just completed a G-round funding this week, Fortune India reported.

Indian private capital markets will see robust earnings and successful IPOs of tech companies in 2022.

Until August of this year, cumulative exits by PE/VC funds reached a remarkable $31 billion. There was more good news for the sector as PE-backed buyouts amounted to $19 billion in 2020, 162% higher than 2019’s $7.4 billion. The figure clocked at $9.4 billion for 2021 to date.

Exit options for investors in India have improved to a great extent over the past five years especially in PE-to-PE transactions, strategic exits and appetite for IPOs in the financial markets. A dozen PE/VC-funded companies have filed for IPOs, which are expected to hit the market in late 2021.

The lobby’s chairman believes the asset class is proving to be a significant part of GDP growth, a result of robust investment flow. Ramnath said—as alternative investments come of age in the country the asset class to GDP ratio could rise to “at least 3% if not 5%.”

"India absorbed $123 billion in the last two years vis-à-vis $200 billion in the last 5 years. Annually this is (close to) 1.8% of India’s current GDP,” she added.

The report, 'IVCA-Preqin Factsheet' was launched at IVCA’s Maximum India Conclave held this October.

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