Opportunities Will Match Challenges

India will continue to be an attractive destination for PE & VC investors. But challenges pertaining to valuation will remain

- Paramita Chatterjee

THE PRIVATE EQUITY (PE) and venture capital (VC) sector in India has undergone a major transformation over the past few years. First, it was an era before the Lehman crisis. The ‘India story’ was shining and some fund managers clinched deals at high valuations based on speculations rather than taking the actual fundamentals into account. Result? A host of investments went kaput, not reaping adequate returns, as desired.

The next phase — that began in 2008 after the collapse of Lehman Brothers, and continued till about 2012 — saw a slowdown in investments, with fund managers tightening their purse strings, and adopting a cautious approach towards new investments. While a part of the reason for this can be attributed to the global financial meltdown, back at home, the first round of investments in the early 2000 had left a clear list of winners and losers that threw the entire sector in a tizzy. On one hand, there were companies who failed to register growth and scale to the next level, on the other, there were fund managers who could not complete a full cycle of investment and exit.

Typically, a single PE/ VC investment cycle lasts for about five to seven years. After that, fund managers normally exit by way of trade sale, public listing, recapitalisation or secondary sale. Currently, we are at a phase when PE investors and venture capitalists have a clear understanding of the market — aware of both opportunities and challenges. So, does this mean that the sector has come of age? Well, the answer is both yes and no, as experts point out.