India-focused PE/VC funds raise record $8.5bn in 2022 despite sharp decline in deals

Though 2022 was marked by a sharp decline in technology investments, private equity (PE) and venture capital (VC) firms marked record-breaking fund closings. According to research firm Preqin, 70 India-focused PC and VC houses closed funds in 2022, raising an aggregate $8.5 billion, which is the highest-ever annual fundraising value.

The annual number of fund closing has more than tripled over the last decade. GPs in India are also raising and closing larger funds, with the average fund size almost doubling from $72.3 million in 2013 to $121.4 million in 2022, as per the report titled ‘Private Equity and Venture Capital in India 2023: Preqin Territory Guide’. The report is published in collaboration with the Indian Venture and Alternate Capital Association (IVCA).  

“Amidst global economic challenges, India’s private equity and VC sector has demonstrated remarkable resilience, positioning itself as the third largest destination for private investment in terms of deals value. Furthermore, looking at data of nine years, India’s exit market has undergone significant deepening and diversification over the years, with aggregate exit value nearly quadrupling and more LPs discovering more accessible pathways,” Rajat Tandon, President of IVCA said.  

The assets under management (AUM) for India-focused PE/VC funds soared to a combined total of $68 billion by the close of December 2022. Additionally, dry powder, the capital ready for investment, exhibited robust growth, with private equity dry powder increasing from $4.8 billion to $5.8 billion, and venture capital dry powder leaping from $6.3 billion to $9.8 billion during the same year. In total, PE/VC dry powder increased to $15.6 billion from $11.1 billion at the end of 2021.  

The report highlights that a slew of factors including global public market rally and historically low-interest rates contributed to record levels of deal value, to the tune of $60 billion. However, the momentum witnessed in 2021 gave way to a significant downturn in 2022, primarily attributed to mounting global macroeconomic challenges. Consequently, the collective value of PE/VC deals plummeted by 42 per cent to $35 billion in 2022.  

“As private equity and VC players in India navigate these uncertain times, there has been a fundamental shift in their investment approach. These investors are increasingly focusing on fewer, higher-quality assets and driving value creation within their portfolios,” said Harsha Narayan, Managing Editor and lead author of the report at Preqin.

As per the report, investor interest shifted away from traditionally popular sectors like IT to sectors such as healthcare and energy and utilities. PE/VC deals in IT experienced a 68 per cent year-on-year drop, plummeting from an aggregate value of $26.3 billion in 2021 to $8.3 billion in 2022. This slowdown has continued this year, with IT deal value shrinking to $1.7 billion in the first seven months of 2023.

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