Well-functioning capital markets are important for the whole ecosystem, and it augurs well that we're on that journey, and I'm sure that we're still scratching the surface: Rohan Suri, Managing Director, KKR
FinTech BizNews Service
Mumbai, February 26, 2024: India’s apex industry body for alternative assets, the Indian Venture and Alternate Capital Association (IVCA), kicked off the 13th edition of its flagship event, the IVCA Conclave, on 26th February 2024 in Mumbai. The event witnessed the participation of several LPs, PEs, VCs, family offices, and eminent government officials.
Commenting on the first day of the IVCA Conclave 2024, Rajat Tandon, President, IVCA, said, "For the past three decades, IVCA has committed itself to providing the entrepreneurial community with a platform to comprehensively assess and grasp the investment landscape of the nation. As demonstrated by today's discussions, with India's economy achieving stability and showcasing sustained, robust resilience, the prospects for India's entrepreneurial ecosystem seem bright. IVCA's central objective revolves around advancing India's growth towards a $5 trillion economy, and the sessions offered strategic insights aimed at accelerating this journey."
In 2023, the alternate capital industry experienced a recalibration of investment strategies towards performance and sustainability, demonstrating the industry’s ability to navigate changing times effectively. Although PE-VC investments experienced a deliberate reduction, reaching $27.9 Bn, investors were able to find a plethora of advantageous exit opportunities, demonstrated by capital outflow touching $19.34 Bn, an increase from 2022. Now, expectations are high for 2024 to bring in renewed and robust inflows. Through the IVCA Conclave 2024, IVCA seeks to empower the investment ecosystem to tap into India's abundant dry powder reserves and embrace the diverse and abundant investment prospects on offer.
Accordingly, Day 1 focused on advancing the growth narrative of the Indian economy, currently the third-largest startup ecosystem and the fastest-growing major economy in the world.
Highlights of the IVCA Conclave 2024
IVCA-EY: PE/VC Agenda: India Trend Book 2024
IVCA and EY launched the 2024 edition of their India Trend Book, which outlines the trends in the alternative investment spectrum in India. Commenting on the trends to watch out for in 2024, Vivek Soni, Partner and Private Equity Leader, EY India, highlighted that startup investments slowed down from $18.5 billion to about $8 billion dollars, and as a result, the entire pure-play PE space saw a decline of $10 billion and stood at $30 billion.
However, he emphasised that fundraising thrived: “From a fundraising point of view, it was a pretty good year. It was the second-best year ever in terms of the value of funds raised. When you look at the number of funds that saw closure, this was the highest ever. If you compare it to 2021, it's a significant jump, more than double that. The real stars were the real assets class, where you had the infrastructure sector and the real estate sector clocking in $12 billion and $8 billion, respectively, marking their all-time highs. We expect that to continue in the foreseeable future.”
Commenting on the exit potential in India, he said, “The real star is the exit story and, within that the role, that the public markets have played in terms of delivering exits for private equity investors. At an overall level, it was the second-best year with almost $25 billions of exits, almost 36% growth from 2022.” He foregrounded how capital market exits have played a leading role in India – “in 2023, we had the second-highest number of IPOs” – specifically open market exits: “This was the first-time open market exits took the highest position, with an almost 94% increase from the previous year.” As the market remains buoyant, more action is expected in this space.”
Late-Stage PE in India: Managers’ Perspectives on Attaining Growth, Creating Value, and Finding Newer Sectors
As the investment landscape matures, private equity (PE) managers in India are looking for novel strategies to unlock growth and create enduring value in the later stages of the investment life cycle. Rohan Suri, Managing Director, KKR, highlighted that the current market presents favourable opportunities. He highlighted three themes behind this: consumption upgradation, the establishment of globally competitive industries, and generational transitions. He added “The biggest story in India, over the last 4–5 years, has really been the level of maturity and depth that capital markets in India have evolved into. It's been a sea change.” He continued, “Quite a few exits that we've solely been exited on the Indian capital markets, and these are large quantums of capital that we have returned through tapping the capital markets in India, which frankly 10 years ago, wasn't something that we would potentially even think of, let alone underwrite.”
Sudhir Variyar, Managing Director & Deputy CEO, Multiples Alternate Asset Management, said, “The fact that the market is quite deep and wide is what makes India attractive for a country-focused fund like us. India is not thematic for a short period of time. It's now about what is the right portfolio you create for India investments. Each of the sectors offers that opportunity, whether it is consumer, healthcare, even manufacturing, tech, and so on. I would say that apart from these, the ownership transition that is happening for us as someone who does both growth and control - all of that now really allows you to think of creating a portfolio of investments rather than say that, in this vintage, I'm seeing more tech deals, and it will be largely tech.”
Sudhir Variyar continued, “On valuations, India has always been expensive because we have always priced in the potential of the market, today even more so because of India's position in, to some extent, geopolitics. Suddenly, there is a clear shift that India has made towards aligning with the US and other markets. Therefore, there are certain linkages that our businesses could also benefit from, so people are saying that the reason why there is a lot of optimism around manufacturing is that people believe that now our businesses can align with some of these markets and there is a growth potential.” He added, “In the long run, for the foreseeable future, it is a multi-decadal growth opportunity, which will continue to be discounted, so there is no reason to believe a complete collapse in valuations to the levels many other markets are.”
Transforming the Next Generation of Innovators and Disruptors: The VC Perspectives
The dynamic entrepreneurial ecosystem calls for strategic approaches and opportunities in fostering transformative ventures led by innovators and disruptors.
Mohanjit Jolly, Partner, Iron Pillar, said, “I have been investing in India since 2007 - 17 years. I believe India has gone through what I call the Inspiration, Aspiration, and Perspiration journey. What I mean by that is when I was here in 2007, trying to get entrepreneurs to think at a $10-15 million top line was a challenge. It wasn't till the watershed moment of Flipkart, Freshworks, and, more recently, the public markets came about that suddenly the light bulb went off and so now, the companies are no longer looking at a valuation of a billion dollars, not in valuation, in revenues. So that's the aspiration that India has.” Addressing the entrepreneurs in the audience, Mohanjit Jolly added, “You have the best time in the world to create juggernauts across industries, and I think India is moving from an IT phase to an IP phase.”
Vijayaraghavan Kannan, Partner, Sathguru Catalysers, noted the gaps and opportunities in the life sciences sector. “Primarily, our LPs are international. Very little domestic institutional investment gets into the life sciences sector today. Even in the Indian traditional fund of funds, there is less than 1% that has gone into life sciences funds today.”
He also provided key insight into startup investments in the life sciences sector: “The elements that are driving startups are the speed at which they steer the inventions. We don't really do much of generative IP in India; what we really steer is the adaptive IP. An example would be a platform like mRNA, which is a generative IP, which is a generative IP - that's mostly in the US. An adaptive IP would be to develop a vaccine based on the mRNA platform. So, we are into adaptive IP - these are product forms, which get to market in 4-5 years span, and they are typically in a very niche segment, where the speed of getting the product to the market is very important with the regulatory approval that comes in there. Ideally, a span of investment would be 8-10 years to get the best of returns, but somewhere, you exit on the way as the value chain ramps up with the regulatory approval there.”
Decarbonising India: Accelerating the Transition to Sustainable Consumption
India's unwavering commitment to environmental sustainability is reflected in the visionary 5-point agenda Amrit Tattva, which emphasises achieving net-zero emissions, reducing carbon intensity, promoting renewable energy, fostering climate finance and technology transfer, and advocating sustainable lifestyles. These goals present a unique opportunity for the alternative capital industry to make a transformative impact in accelerating the transition towards sustainable living.
Anjali Bansal, Founder, Avaana Climate and Sustainability Fund, and Chair, Climate and Sustainability Council, IVCA, remarked, “There is so much momentum to invest in new solutions which don't exist today. Energy transition - what is required is grid-scale storage, pumped hydrogen, and battery energy storage systems. Policy is a big enabler; EV transition is happening because policy actually enabled it. We are seeing the trickle-down effects of the PLI schemes of solar and hydrogen and biofuels.”
She also highlighted, “If you go back, when plastic was first invented, it was actually a miracle material. It helped to extend the shelf life of food, it helped to feed millions – the world was reeling under famine and poverty, so food security was a big issue. Today, we are trying desperately as a society and as markets and economies and companies to move out of plastics. What's the barrier? Not because companies don't want to, people don't want to. It's because we don't have an alternative. That is the biggest case for investing in technology and innovation. Why is solar today cheaper than a new unit of thermal? The adoption of solar has happened because it makes business sense, not because it's good for the planet.”
Sophia Nadur, Managing Director - Rest of World & Europe, bp ventures, began by highlighting, “As India will become the second-biggest marketplace in the world, how do you make sure that you're not stopping the growth but you're doing it in a way that's sustainable?” She continued, “One of the things we did in terms of low-hanging fruit was invest in a last-mile logistics platform, and that as well, has helped to ensure that all of the OEMs are now putting more and more money into electric three-wheels, four-wheels, and trucks to be able to ensure that you have got the products available to move goods much more sustainably to where they need to go. That has been an early-stage premise for how we're looking at the Indian market.”
200Mn+ Entrepreneurial Households: An EPIC Growth Opportunity
With an estimated 200 million+ entrepreneurial households in India, the startup ecosystem has emerged as a springboard for wealth and value creation. Tier 2 and 3 cities, especially, or “Bharat” is expected to lead the way for India.
Karthik Reddy, Chairperson, IVCA, and Co-founder and Managing Partner, Blume Ventures, said, “We’re in the phase where all the groundwork has been established; the foundation is very strong, so the acceleration should pick up from here for the next decade or so.” He continued, “Broadly, venture, private equity, real estate – all of these asset classes, credit depend on long-term pools of capital. We have long-term pools, but they haven’t been unshackled from taking this risk. If you go to provident funds, pension funds, PFRDA, all of these folks, a small sliver of their capital, which the government has permitted now – up to 5% to come into these asset classes now, has actually not started flowing in.”
Madhur Singhal, Managing Partner & CEO, Praxis Global Alliance, said, “Overall, private capital has together brought in $210 billion of capital in the country, and $210 billion has roughly supported around a trillion dollars of GDP increment. We are, depending on the exchange rates you take, now around $3.5 billion in nominal GDP. If we have to get $5 trillion from here, our estimates are that you need at least $600 billion of private capital to come into the country.” He added, “3X of the capital that has come in the last 5 years has to actually come in the next 5 years because the internal cash accruals of the companies, ECBs, IPO markets, whatever other sources of capital are, they cannot support the amount of capital formation the country needs if we want to get to the $5 trillion economy. That’s where the gap is filled by private capital.”
Private Credit in India: The $100 Bn Opportunity
Following the increased dominance of sophisticated private credit funds in the global lending space, India is the next big destination for private credit. The MSME space is the next big push in India’s growth story. With liquidity getting sapped from banks and NBFCs, capital can be made available through the private credit route to this segment.
Amit Agarwal, President-Private Debt, Edelweiss Alternatives, said, “The private credit spectrum is fairly wide. You have funds raising capital from promising 13% odd returns to up to high teen returns on the private credit side. Investing is quite well understood. I think it’s important to understand what the domestic LP is looking to give you money for because this is a capital that is unlike the previous avatars, where it was drawable back in a mutual fund structure or in a bank structure where they are giving deposits which can be drawn. These are 4-5 years of locked-in capital.”
He added, “I think the market as it deepens, the more the number of competitions coming in, it is actually better for the industry. For example, a recent regulatory change of demating AIF units, I think that is a very progressive thing because now people can look at it in their demat accounts, and there can be trading.” He added, “I think the LPs will start becoming more cognisant that they have liquidity from outside the market apart from only contributing into the fund, so that is going to lead to a lot of development of the market,” highlighting that investee entities are looking for three things: growth is faster, there are flexible solutions, and a partnership approach is followed.
