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M&A, Venture Capital, and Private Equity: A Thriving Investment Climate
Several trends have become apparent as the Indian investment landscape has continued to evolve:
• As Indian market sectors are opened to FDI and ownership ceilings are raised or lifted
entirely, average deal size has increased.
• VC investors are seeing new opportunities for seed and early-stage investment in returnee
and domestic startups—particularly as larger private equity players enter the
market and focus on mezzanine, late-stage turnaround, and private investment in
public equity (PIPE) financing.
• Investment has diversified, from mainly IT/BPO and related services into the mobile
telecom, media, manufacturing, retailing, automotive, aviation, health care,
pharmaceutical, real estate/infrastructure, travel, and financial services sectors.
• Investors are increasingly focused on building longer-term, “influential” minority stakes
in firms, typically negotiated up front with management, versus investment geared
toward an IPO, M&A, or some other shorter-term exit strategy.
In fiscal 2004–05, the National Association of Software and Service Companies (NASSCOM)
identified 46 venture capital/private equity deals valued at $1.3 billion. Ninety percent of the investment
was with existing, mostly profitable, firms such as optical storage firm Moser Baer, life
insurance/health care provider Max India, television network UTV, and the $500 million private
equity buyout, by Oak Hill Capital Partners and General Atlantic, of GE Capital International
Services (GECIS). Investment in biotech was relatively low, at $70 million over nine firms.
By 2007–08, according to the U.S.-India Venture Capital Association (now the Global India
Venture Capital Association) and Venture Intelligence, the largest single investment (in Bharti
Infratel) had grown to $1 billion; private equity firms had invested $10 billion or more in 249
companies and 31% of deals were in the $10–25 million category; and on the VC side, only 23%
of all deals were less than $2 million. Only 16 of 65 private equity exits—and only 2 of 24 VC
exits—were through IPOs. IT and IT-enabled services remained the leading sector by volume—
half to two-thirds, by various estimates—but business and financial services led by total value.
Average deal size was now around $45 million, up from $21 million in 2005.
Venture investment in India fell sharply in the first half of 2009 (27 deals with a value of $117
million versus 67 deals worth $413 million in the first half of 2008), reflecting instability in global
financial markets. Deal flow is expected to recover, however, as emerging markets attract
increasing attention and the global economy strengthens.
The Floodgates Open
A watershed exit in March 2005 changed the Indian investment landscape, leading to a flood of
new capital raised and deployed by large institutional players. Over 1999–2001, Warburg Pincus
had acquired for some $300 million an 18.5% position in Bharti Tele-Ventures, India’s largest
publicly traded mobile telephone company. With hands-on involvement from Warburg, Bharti
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