- Growth investments contributed most to the PE/VC investments in 2023 with US$17.1 billion invested across 147 deals.
- From a sectoral perspective, infrastructure was the leading sector in 2023, attracting an investment of US$11.6 billion invested across 57 deals, a growth of 29% y-o-y.
- 2023 recorded PEVC exits worth US$24.8 billion, with open market exits witnessing the largest share (US$12.8 billion).
Mumbai, 24 January 2023: According to the IVCA-EY monthly PE/VC roundup, 2023 witnessed US$49.8 billion worth of investments across 853 deals as compared to US$ 56,1 billion across 1,273 deals. The decline in deal volume was primarily caused by a sharp fall of 42% y-o-y in the number of deals in the startup segment (472 deals in 2023 vs. 815 deals in 2022).
Vivek Soni, Partner and National Leader, Private Equity Services, EY said, “PE/VC investments recorded a second consecutive year of decline in 2023. The dollar value of PE/VC investments fell by 11% y-o-y to $49.8 billion, primarily due to a 33% decline in overall deal volume caused by the startup segment, which saw a sharp fall of 42% y-o-y in the number of deals (472 deals in 2023 vs. 815 deals in 2022), with deal values falling from $18.5 billion in 2022 to $8.8 billion. The share of PE/VC investments in start-ups also fell to 17%, which is second lowest in the past 10 years. The other deal segments of Growth and Buyouts saw a moderate increase in the dollar value of investments, and Private investment in public equity (PIPE) deals increased by an impressive 110%.
The fall in pure play PE/VC investments was pronounced in 2023, a 25% y-o-y decline with US$30.1 billion across 741 deals). This was however offset by PE/VC investments in infrastructure and real estate asset classes that recorded a y-o-y growth of 23% in 2023(US$19.6 billion across 112 deals in 2023).
While the buoyant capital markets have proved to be a negative for private transactions on account of the valuation mismatch between investors and sellers, they have been a tailwind to PE/VC exits, which recorded a healthy growth of 36%, making 2023 the second-best year of PE/VC exits at US$24.8 billion. Exits via open market were at an all-time high of US$12.8 billion, which mainly comprised of follow-on stake sales in recently listed PE-backed companies. PE-backed IPOs too recorded the second-best year with 30 IPOs.
A steep decline in start-up investments meant both the traditionally favourite sectors of technology and e-commerce saw a decline in PE/VC investments of 39% and 55% respectively. Infrastructure was the largest sector in 2023 with US$11.6 billion invested, a growth of 29% y-o-y followed by real estate that saw highest ever PE/VC investments at US$8 billion, a 15% increase y-o-y. Healthcare sector too, recorded all-time high PE/VC investments of US$5 billion.
Post the monetary easing propelled bull run of 2021, PE/VC investments have faced headwinds since 2Q22 due to inflation, rising cost of capital, heightened uncertainty stemming from geopolitical tensions and fears of a recession in US and Europe. In India, while the macro has remained strong and stable, expectations gap between buyers and sellers has resulted in a bid-ask spread that for a significant portion of 2023, was the primary cause behind the fall in transaction closures. For startups with high cash burn rates, the potential pool of investors has reduced drastically, primarily on account of the increased cost of capital and growth concerns. The buoyant Indian equity markets however have attracted substantial PE/VC capital in the listed space and helped PE/VC funds exit large, listed positions with minimal discount and absorbed numerous PEVC portfolio company IPOs. Overall, PEVC funds have significant amounts of dry powder and with global funds looking to increase India’s capital allocation, a prolonged growth runway for the Indian PE/VC ecosystem can be projected. While the factors that have marred startup investments are expected to remain sticky, we hope that as interest rates peak, the bid ask to spread between investors and sellers will begin to converge, thereby leading to growth in deal segments of growth, buyouts and PIPE trades. We remain optimistic about Indian PEVC investments and exits in 2024.”
Investments
PE/VC investments continue to decline for the second consecutive year, recording US$49.8 billion in 2023, a 11% decline y-o-y (US$56.1 billion in 2022) and a 34% decline compared to 2021 when the PE/VC investments recorded an all-time high of US$75.9 billion.
PE/VC investments in 2023 declined despite an increase in the value of large deals (deals of value greater than US$100 million) compared to 2022 because of a significant decline of 33% in deal volume compared to both the preceding years (854 deals in 2023 vs 1,273 deals in 2022 and 1,269 deals in 2021). 2023 recorded large deals worth US$38.7 billion vs. US$36.6 billion in 2022.
The decline in deal volume was primarily caused by a sharp fall of 42% y-o-y in the startup segment (472 deals in 2023 vs. 815 deals in 2022). The dollar value of PE/VC investments in startups recorded an even bigger drop of ~53% (US$8.8 billion in 2023 vs. US$18.6 billion in 2022) causing it to lose its position as the largest segment of PE/VC investments, a title it held since 2021 despite a huge fall in investment value in 2022). The share of PE/VC investments in startups also fell to 17%, second lowest in the past 10 years and behind 2020, a year significantly impacted by the pandemic and the ensuing lockdowns.
Growth investments was the largest segment for PE/VC investments this year with US$17.1 billion invested across 147 deals, a 4% increase in terms of value and a 21% decline in terms of volume compared 2022 (US$16.4 billion across 186 deals), with four US$1 billion+ deals compared to just one last year.
Buyouts deals came in second with 56 deals worth US$12 billion, a 14% growth y-o-y in terms of value (US$10.4 billion across 53 deals in 2022). This growth was mostly due to three US$1 billion+ deals.
The largest deals in 2023 include two growth investments – Temasek’s US$2 billion investment in Manipal Health and US$2 billion investment in Digital Edge DC, a 300MW hyperscale facility in Navi Mumbai by NIIF, AGP DC InvestCo and Digital Edge (Singapore) Holdings.
PIPEdeals recorded the highest growth this year with a 110% increase y–o-y (US$8.4 billion across 111 deals in 2023 vs. US$4 billion across 63 deals in 2022). PIPE investments were also the highest ever in 2023.
Credit investments had the sharpest fall in deal volume recording 67 deals in 2023 compared to 156 deals in 2022, leading to a steep decline of 48% y-o-y in the dollar value of credit investments (US$3.5 billion in 2023 vs US$6.7 billion in 2022).
The fall in pure play PE/VC investments was pronounced in 2023, a 25% y-o-y decline with US$30.2 billion recorded across 741 deals compared to 2022 (US$40.2 billion across 1,103 deals). This was however offset by PE/VC investments in infrastructure and real estate asset classes which recorded a y-o-y growth of 23% in 2023 (US$19.6 billion across 112 deals in 2023 vs US$16 billion across 170 deals in 2022).
From a sector point of view, infrastructure was the leading sector in 2023 with US$11.6 billion invested across 57 deals, a growth of 29% y-o-y (US$9 billion across 75 deals in 2022). PE/VC investments in infrastructure in 2023 were the second highest ever. Real estate was the second largest sector in 2023 with US$8 billion recorded across 55 deals, a 15% increase y-o-y (US$6.9 billion across 95 deals in 2022) and the highest ever value of PE/VC investments in the sector. Financial services, a traditionally favoured sector by PE/VC investors, was the third largest in 2023, unlike the previous two years, when it was the largest. PE/VC investments in the financial services sector recorded a sharp fall of 39% y-o-y, with US$6.4 billion recorded across 161 deals in 2023. This was mainly due to a sharp decline in the number of Fintech deals (174 deals in 2022 to 76 deals in 2023), a segment preferred by PE/VC investors. Healthcare sector was the fourth largest, recording the highest ever value of PE/VC investments in 2023 at US$5 billion across 63 deals, almost double the value invested in 2022. This was largely on the back of the US$2 billion Temasek-Manipal deal.
Business and professional services and industrial products recorded the highest growth y-o-y of 319% and 299% respectively.
Traditionally favoured sectors like e-commerce and technology recorded a y-o-y decline of 55% and 39% respectively in terms of dollar value invested, mainly due to the fall in PE/VC investments in startups. PE/VC investments in the e-commerce sector were the lowest in seven years.
Exits
In 2023 exits were valued at US$24.8 billion, a 36% growth compared to 2022 (US$18.3 billion), but a 37% decline compared to 2021 (US$39.6 billion). In terms of volume, exits in 2023 were the highest ever, a 22% growth compared to 2022 (303 deals in 2023 vs 248 deals in 2022).
Open market exit was the largest segment in 2023, with US$12.8 billion recorded across 131 deals, a growth of 94% y-o-y. 2023 also recorded the second highest number of PE-backed IPOs ever (30 IPOs).
In 2023, secondary exits and PE-backed IPOs recorded a 37% (US$6.6 billion in 2023 vs US$4.8 billion in 2022) and 28% (US$1.4 billion in 2023 vs US$1.1 billion in 2022) growth, respectively.
In 2023, strategic exits and buybacks recorded a 33% (US$3.5 billion in 2023 vs US$5.2 billion in 2022) and 13% (US$486 million in 2023 vs US$562 million in 2022) decline, respectively.
The largest exit in 2023 was by Tiger Global and Accel where they sold a combined 4% stake in Flipkart to Walmart for US$1.4 billion.
From a sector point of view, the financial services sector had the highest value of exits in 2023 (US$7.4 billion across 80 deals) a 94% growth when compared to 2022 (US$3.8 billion across 40 deals). The e-commerce sector recorded the second highest value of exits in 2023 (US$2.9 billion across 35 deals), a 67% growth compared to 2022 (US$1.7 billion across 32 deals). Healthcare was the next big sector with exits worth US$2.8 billion across 16 deals, a 32% growth when compared to 2022 (US$2.1 billion across 21 deals).
Fundraise
2023 recorded an 8% decline in fundraising, with US$15.9 billion in fundraises across 102 funds compared to US$17.4 billion raised across 99 funds in 2022 and a 105% growth compared to US$7.7 billion raised across 73 funds in 2021.
The largest fundraise in 2023 saw New York-based Tiger Global Management raise US$2.7 billion for its 16th Fund with a focus on investments in Indian startups. Kotak Investment Advisors’ US$1.3 billion fundraise of its Kotak Special Situations Fund 2 targeted at equity, debt capital and hybrid instruments across sectors was the second largest.
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