Private Market Investors Rush to India

In 2021, investors poured $63 billion into India as a record number of unicorns became “IPO-ready.”

A Flipkart warehouse in Chennai, IN (Anindito Mukherjee/Bloomberg)

A Flipkart warehouse in Chennai, IN

(Anindito Mukherjee/Bloomberg)

With 44 venture capital-backed start-ups hitting the crucial $1 billion mark last year, private market investors are rushing to cash in on India’s growing technology sector.

In 2021, venture capitalists and private equity firms across the world invested $63 billion into India, up from $40 billion in 2020, according to data and research firm Venture Intelligence. The number of deals rose to a record 1,202 in 2021, up from 913 the year before. The value of deals in India tripled from $11.4 billion in 2020 to $34.7 billion last year, according to Venture Intelligence.

Private investors’ enthusiasm for the Indian market was intricately linked to the flurry of emerging “unicorns,” which are start-ups valued at $1 billion or more. The biggest investment was the $3.6 billion injected into e-commerce company Flipkart. Flipkart was backed by both public and private institutional investors, including the Canada Pension Plan Investment Board, Tencent, SoftBank, and Tiger Global, the hedge fund that has been increasing its private market investments. Two-thirds of the firm’s $95 billion in assets is now in private equity investments.

The second largest deal was the $3 billion investment from Carlyle into IT services company Hexaware, followed by a $2.8 billion investment from Blackstone into applied technology services firm Mphasis.

Tiger Global participated in one out of every three deals valued at $100 million or more, with 60 investments across 47 companies. Sequoia Capital India was the busiest investor in the country, with 105 transactions across 91 companies.

Investcorp, an alternative investment firm, expects that 100 new unicorns will be created in the country by 2025.

In the fourth quarter alone, Indian unicorn companies in the information and technology sectors attracted $5 billion through 25 deals, according to data from Venture Intelligence. “And there are many companies [in India] hitting $100 million in revenues,” said Sunil Koul, senior Asia Pacific Indian equities strategist at Goldman Sachs. In a recent podcast, Koul said such unicorns were “feeling kind of IPO-ready” as they had reached the “end of scale.”

“We are at that inflection point where a lot of these startups are sort of getting to reasonable scale from an India standpoint,” Koul said, adding that about half of all unicorn companies in India reached the $1 billion valuation milestone in 2021. The Indian government also served as a driving force behind the booming private market when it made regulatory changes to accelerate the IPO process in March, according to Koul.

Koul named e-commerce, fintech, software-as-a-service, enterprise services, education technology, and food technology as key areas of growth in India’s private market. In 2021, e-commerce companies drew $10.3 billion from PE and VC investors, followed by fintech firms with $7.7 billion, according to Venture Intelligence.

Timothy Moe, chief Asia Pacific equity strategist at Goldman Sachs, said that India is mirroring the digital transformation process in China, which resulted in “the best 10-year [growth] of earnings of all the markets in the region and has generated significant amounts of wealth.”

“China really is the analog that many people, including us, are looking at,” Moe said in the podcast. He added that both India and China have very large domestic populations and underlying technologies that enable rapid growth of the market. “Someone else has established the precedent,” he said. “It’s easy to kind of copy that and then perhaps leapfrog that.”