Traditional Companies Outshone New Age Startups In 2023 PE-VC Funding- Check Details

Traditional companies outshined new-age firms to secure the favour of private equity (PE) and venture capital (VC) investors in 2023. The allure of established business models propelled legacy companies to command the lion's share of PE-VC investments during the year.

PE Dominance in Backing Legacy FirmsPE funds spearheaded the surge in investments, PE funds have historically explored deals in emerging tech firms, but their focus on established entities has been more pronounced in recent years. Notable startups like Dream11 and Sugar have garnered support from PE investors such as TPG and L Catterton.

Healthcare, Retail, Energy, and Advanced Manufacturing Take the LeadA report by Bain & Co. revealed a significant shift in investment patterns, with 75 per cent of PE-VC investments flowing into traditional sectors in 2023. This marked an increase from 60 per cent in the previous year. Healthcare emerged as a key beneficiary, reaching a record high of USD 5.5 billion in investments. Additionally, a series of PE investments injected vigour into Reliance's retail unit, further bolstering the share of consumer deals in the market.

VC vs. PE Investment DynamicsWhile venture capitalists typically gravitate towards startups, which inherently carry higher risk, PE investors exhibit a preference for established companies with proven track records. This dichotomy in investment strategies underscores the varying risk appetites and objectives of VC and PE players.

India's Rising Share in PE-VC InvestmentsIndia's prominence in the PE-VC landscape of the Asia-Pacific region has witnessed a steady ascent over the past five years, paralleled only by Japan. Notably, China's share of investments declined from 55 per cent in 2018 to 31 per cent in 2023. Analysts attribute this shift to favourable policies in India, such as production-linked incentives, export promotion initiatives, and customs duty rationalization, which have incentivized global firms to diversify production outside China.

Outlook for 2024: Cautious Optimism Amid Global ChallengesDespite global headwinds such as sluggish GDP growth and geopolitical tensions in regions like West Asia posing risks to investor sentiment, analysts remain cautiously optimistic about the investment landscape in 2024. Sai Deo, a partner at Bain & Co, anticipates a better overall tally in 2024 compared to the previous year, citing promising green shoots in investment activities. India's growing significance within the Asia-Pacific region underscores its emergence as a focal point for investors seeking lucrative opportunities.

Expansion of PE and VC Presence in IndiaRecent reports indicate a surge in fundraising activities among global and domestic PE and VC funds, with many actively seeking investment opportunities in India. Domestic funds have significantly expanded their footprint in the Indian market, witnessing a 2.5-fold increase in their share of PE investments over the past four years. Leading global players like KKR and Blackstone are also diversifying into new asset classes such as growth and private credit, signaling a broader trend of capital allocation towards India.