Brief:

Private equity (PE) involves investments in companies that are not publicly traded on stock exchanges. PE firms raise capital from high net-worth individuals and institutions, then use that money to acquire significant ownership stakes in private businesses.

The goal is to help these companies grow and eventually sell them for a profit, returning a multiplied investment to the PE firm and its investors.

Venture capitalists (VCs) are essentially financial sponsors for startups and early-stage companies. They invest capital in exchange for ownership stakes in these companies, believing they have high growth potential.

Benefits:

Capital Growth: PE and VC firms provide funding for private companies to expand and reach their full potential.

Operational Expertise: PE and VC firms often offer strategic guidance and operational support to portfolio companies, enhancing their efficiency.

Liquidity: PE and VC investments can offer high returns for investors when companies are eventually sold or go public.

Limitations

High-Risk, High-Reward: PE and VC investments are inherently risky due to the illiquid nature of private companies.

Long Investment Horizon: Investors might have to wait for several years to see returns on their investments.

Limited Accessibility: PE and VC opportunities are typically restricted to high-net-worth individuals and institutional investors.

Growth of PE & VC investments in India

Early Days (1996): A modest start with just a handful of deals totaling around $20 million.

Growth Spurt (2007): Investments reached a staggering $17.13 billion across 339 deals, propelling India to the top tier of PE and VC destinations globally.

Recent Trends (2023): After a record-breaking 2021 ($70 billion), the market saw a correction in 2022 ($62 billion) due to global factors. However, the first half of 2023 ($21 billion) suggests a return to pre-pandemic levels.

Private Equity (PE) and Venture Capital (VC) firms invested USD77 billion across 1,266 deals in India in 2021, a 62% increase from USD47.6 billion across 923 deals in 2020. Despite the recent downtrend in PE-VC investments in 2022, Foreign Portfolio Investment (FPI) inflows are expected to remain strong in the future, given India’s resilient growth outlook.

Recent deals

JM Financial Private Equity (JMFPE) is providing Rs 45 crore to Energy Beverages Private Limited. This company owns the bottled water brand known as "Clear Premium Water".

abCoffee has raised $3.4 million in funding at the close of a Series A round led by Nexus Venture Partners and with participation from existing investor Tanglin Venture Partners.

SalarySe, a fintech company that offers Credit-on-UPI, raised $5.25 million in seed funding led by Surge, Peak XV’s rapid scale-up program, and Pravega Ventures.

DISCLAIMER: This blog is solely for educational purposes and not to offer any investment advice. Please do your own research or consult a financial advisor before making any investment decisions.