Private Equity/Venture Capital investments in startups plunge 75% YoY to just USD 3.3 billion: Report

Deepening the funding crisis that startups have been witnessing for some time, the October inflows plunged 75 per cent on-year to USD 3.3 billion across 75 deals, including six large deals worth USD 2.2 billion, according to an industry report.

Exits touched half of the inflows at USD 1.6 billion across 15 deals in the reporting months, a significant improvement over the previous month which saw just USD 653 million worth of exits across 24 deals, but 69 per cent lower on-year basis, according to the numbers collated by EY for the Indian Private Equity & Venture Capital Association, the umbrella body the PEs and VCs.

However, the report said, on a month-on-month basis, the inflows continued to grow, clipping at 60 per cent over the September numbers. According to Vivek Soni, a partner at EY said, PE/VC inflows fell 75 per cent to USD 3.3 billion in October on an annualised basis.

However, on a monthly basis October was a record as after being on a declining trend for the past five months, inflows recorded a sequential uptick to the tune of 60 per cent. In volume terms, the month saw 75 deals, a 43 per cent decline from 132 deals in October 2021.

He attributed the funding crisis to inflation woes, global recession fears, rising cost of capital and elevated levels of uncertainty driven by geopolitical tension.

The month had six USD 100 million-plus deals aggregating to USD 2.2 billion, a sharp drop from 24 large deals worth USD 11.3 billion in October 2021. By deal type, growth investments were the highest in terms of value at USD 2 billion across 13 deals, which includes the USD 1 billion investment in Citiustech by Bain Capital for a 40 per cent stake, the report said.

The month saw 15 exits worth USD 1.6 billion compared to USD 5.2 billion in October 2021 across 25 deals and USD 653 million across 24 deals in September 2022. October 2021 recorded two large secondary exits worth USD5 billion?the USD3 billion Hexaware deal between Carlyle and Baring Asia and USD 1.9 billion VFS Global deal between EQT and Blackstone.

Exits via secondary sale were the highest with four exits worth USD 1.4 billion, propped up by the large secondary deal which saw Bain Capital purchase a 40 per cent stake in Citiustech for USD 960 million from BPEA EQT, making it the largest exit in this month and the fourth largest this year.

The USD 1-billion Citiustech deal between Bain Capital and BPEA EQT helped prop up PE/VC exits in October to USD 1.6 billion. However, on an on-year basis, exits were lower by 69 per cent.

Exits via secondary sale were the highest in the month with four exits worth USD 1.4 billion.

From a sector point of view, healthcare topped with USD 977 million inflows across three deals, followed by financial services, with USD 216 million across 13 deals.

Traditionally favourite sectors like technology and e-commerce saw a 90 per cent plunge in investments.

Soni expects an uptick in consolidation/M&As within the startup space in the coming months. On the PE side, valuations or the bid/ask spreads continue to be the main factor slowing down deal closure activity, he said, adding over the next three-four months, the situation may improve as sellers and investors alike find equilibrium.

By deal type, growth investments were the highest in October at USD2 billion across 13 deals compared to USD 1.7 billion across 13 deals in October 2021 and USD 502 million across 16 deals in September.

Startups got USD 583 million across 46 deals in October compared to USD 4 billion recorded across 100 deals in October 2021 and USD 938 million across 43 deals in September 2022.

Buyouts recorded USD 472 million across four deals compared to USD 6 billion across six deals in October 2021 and USD 81 million across three deals in September 2022