Resilience and Rebound: A Look into India’s PE/VC Landscape in 2023

EY unveiled its latest insights into India’s Private Equity (PE) and Venture Capital (VC) scene at the IVCA Conclave, revealing a story of contrasts and resilience. Despite a challenging year marked by an 11% decline in overall investments, the PE/VC industry saw a surge in exits, reaching US$24.8 billion, a remarkable 36% increase. The infrastructure sector emerged as a key recipient of investments, attracting US$11.6 billion.

Vivek Soni, Partner and National Leader for Private Equity Services at EY India, reflected on the complexities of 2023, noting the decline in overall investments but highlighting the significant growth in sectors like infrastructure and real estate. The report’s analysis of the PE/VC landscape in 2023 highlighted the nuanced factors at play, from high valuations to regulatory uncertainties, shaping investment and exit activities.

The report also delved into the evolving strategies of VC funds and startups, emphasizing a shift towards profitability and sustainable growth. As startups recalibrate their strategies, VC funds are navigating challenges in later-stage investments while identifying promising early-stage opportunities.

Rajat Tandon, President of IVCA, echoed the sentiment of resilience, noting India’s demographic strengths and market potential as key drivers of the startup ecosystem. Despite challenges, the report anticipates a strategic shift in investment approaches, a rise in sectoral focus, and a resurgence in alternate capital investments post-elections.

Key trends highlighted in the report include:

1. Overall Decline in Investments: PE/VC investments witnessed an 11% decline in 2023, with the number of deals falling by 33%. The startup segment experienced a substantial 42% decline in deals, leading to a 53% drop in the dollar value of investments.
2. Shift in Investment Strategy: Pure-play PE/VC investments saw a 25% year-on-year decrease, while real assets like infrastructure and real estate saw a robust 23% increase.
3. Churn in Sectoral Allocation: Infrastructure emerged as the leading sector, attracting US$11.6 billion, while traditional favorites like financial services and technology witnessed a decline. The healthcare sector recorded a substantial high of US$5 billion.
4. Rise in PE/VC Exits: Exits grew by 36%, reaching a historic high of US$24.8 billion, with open market exits comprising 52% of the total exits.
5. Strong Build-up in Dry Powder: Despite the decline in investments, fundraising recorded the second-highest dollar value of funds raised, totaling US$15.9 billion, with an all-time high of 102 funds successfully raised.

Looking ahead, the report paints a positive outlook for India’s startup ecosystem, citing its resilience and strong fundamentals. Despite challenges, India’s startup landscape is poised for growth, driven by strategic investments and prudent growth strategies. As the interest rate curve begins to taper downwards and policy continuity is expected post-general elections, India’s PE/VC investments are likely to pick up pace, signaling a convergence between seller expectations and buyer valuations.