VC investments in India soften across all verticals, except fintech: KPMG

• In the September ending quarter, the value of VC deals stood at $2.7 billion.
• This quarter’s VC deal value is much lower than that of Q3, 2021 where it peaked to $15.9 billion.
• Fintech investment continued to buck the trend as seen in many big deals, says KPMG.
• Globally, VC investment dropped to a low not seen since the second quarter of 2020.
• KPMG expects these challenges to continue in the fourth quarter, and deals will also take more time to close.
  

Venture capital investments in India have been ‘quiet’ both in terms of deal count and value in the September ending quarter, says a KPMG report.

For the June-September quarter this year, the total deal value of VC investments stood at $2.7 billion. This is significantly lower than what it was in the same period last year at $15.9 billion. However, deal values peaked in Q3 of 2021 and have been falling since then. But the Q3 deal value in 2022 fell sharply as compared sequentially too – from Q2’s $7.4 billion.

Yet, there is a silver lining. “VC investment in India has softened this quarter across most industry verticals. Fintech investment however continued to buck this trend garnering significant investor attention as evidenced in the number of big deals,” said Nitish Poddar, partner and nation leader of private equity at KPMG India.

The largest deal of the quarter was a $210 million investment in edtech UpGrad, and a $165 million investment into eyeglass prescription company, Lenskart.

Neo-bank platform Niyo too raised $130 million during the quarter. “Fintech was one of the most attractive sectors of investment in India, this quarter. In addition to Niyo, online automobile insurance company InsuranceDekho raised $100 million, and digital lending company EarlySalary raised $97 million,” the report said.

In spite of slowing, India is one of the few countries where VC activity is still resilient along with China and Japan, says the report.

Every region had at least one over $1 billion mega deal

Globally, VC investment dropped to a low not seen since the second quarter of 2020 – in the thick of the pandemic. This in spite of mega deals seen across every region like $1.9 billion raised by SpaceX in the US, $1.4 billion raised by Celonis in Germany and $1.2 billion raised by Sunwoda EVB from China.

The overall VC funding for the quarter stood at $87 billion for Q3 globally, falling sharply from $136 billion in Q2. On a year-on-year comparison, the fall is even higher from $190 billion in Q3 of 2021.

This quarter also saw a lot of down rounds where funds were raised at lower valuations, the report said.

“Companies that have high valuation will have to work hard to keep them. On the positive side there is a lot of dry powder in the market. The strong companies and resilient ones will continue to attract funding and they will prosper,” said Jonathan Lavender, global head of KPMG.

As per the report, the energy, healthcare and biotech sectors continued to witness good VC activity along with, while consumer focussed companies lost traction due to high inflation, interest rates and strengthening case for a global recession.

KPMG also expects these challenges to continue in the fourth quarter as well. “Deals will take more time to complete as investors conduct robust due diligence, particularly on forecasts. While the IPO door is expected to remain firmly shut, there could be an upswing in M&A activity as companies consider alternative exit plans,” the report said.

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