Venture capital and private equity in India: an analysis of investments and exits

Abstract

PurposeThe venture capital and private equity (VCPE) industry in India has grown significantly in recent years. During five‐year period 2004‐2008, the industry growth rate in India was the fastest globally and it rose to occupy the number three slot worldwide in terms of quantum of investments. However, academic research on the Indian VCPE industry has been limited. This paper seeks to fill the gap in research on the recent trends in the Indian VCPE industry.Design/methodology/approachStudies on the VCPE transactions have traditionally focused on one of the components of the investment lifecycle, i.e. investments, monitoring, or exit. This study is based on analyzing the investment life cycle in its entirety, from the time of investment by the VCPE fund till the time of exit. The analysis was based on a total of 1,912 VCPE transactions involving 1,503 firms during the years 2004‐2008.FindingsMost VCPE investments were in late stage financing and took place many years after the incorporation of the investee firm. The industry was also characterized by the short duration of the investments. The type of exit was well predicted by the type of industry, financing stage, region of investment, and type of VCPE fund.Originality/valueThis paper highlights some of the key areas to ensure sustainable growth of the industry. Early stage funding opportunities should be increased to ensure that there is a strong pipeline of investment opportunities for late stage investors. VCPE investments should be seen as long‐term investments and not as “quick flips”. To achieve this, it is important to have a strong domestic VCPE industry which can stay invested in the portfolio company for a longer term.