India sees second-best quarter of VC investment in Q4 2021: KPMG report

Despite venture capital (VC) investment in India dropping "dramatically" in Q4 2021 compared to the record high set in Q3 2021, the quarter in review was country's second-best quarter of VC investments ever, according to a KPMG report.

As per the Q4'21 edition of' Venture Pulse' - a quarterly report published by KPMG Private Enterprise on VC trends in key jurisdictions around the world, a growing economy, stable government policies, and a growing middle class have all contributed to the upswell in interest from VC investors. "Shifting policy directions in China have likely also helped drive addition investment into India, particularly in sectors not seen as a priority by China’s Central Government," it added.

Sector wise, the report highlighted that fintech was a very strong area of VC investment in India during Q4’21, in addition to healthtech, B2B services, and direct-to-consumer platforms.

Moreover, the country also witnessed a steep rise in both the number of corporate venture capital (CVC) deals and the total of CVC investment compared to previous highs, the report added.

In terms of the rise in unicorn companies -- a popular term used in the VC industry to refer to a privately held start-up company that has reached a valuation of $1 billion -- India saw over fifty new unicorn companies – a major jump from previous years. "The breadth of new unicorns in India highlights the growing breadth of India’s startup ecosystem and maturity of start-ups across a range of sectors," it added.

Further, IPO activity soared in Q4 2021, the report noted with India starting on a cooler note and really heating up in the said quarter with the IPOs of online cosmetics company Nykaa and digital payments firm Paytm, stated the report.

Nykaa raised $722 million in its October IPO, while digital payments firm Paytm held a $2.4 billion dual-listing on the Bombay and National Stock Exchanges on November 8. "The booming stock market in India has likely helped drive continued interest in the VC market, as VC investors gained increasing confidence that they can get good exits from their investments in the country." it said.

Globally, the quarter in review capped off what has been a banner year for the global VC market, the report stated, adding that the quarter witnessed near-record highs for total venture capital investment, corporate venture capital investment, exits and global fundraising.  

Global quarterly venture capital investment surpassed the $150-billion mark in consecutive quarters this year, reaching $171 billion across 8,710 deals during Q4’21 – only slightly below the previous high of $180 billion on 9,953 deals achieved in Q3’21.

It also added that nine $1 billion+ megadeals by companies in the US and Asia helped drive the surge – contributing over $13.5 billion to the quarterly global investment total.

Further,  on a regional level, the Americas led VC investment in Q4’21, with $95.2 billion, followed by Asia ($46.2 billion) and Europe ($28 billion). Corporate VC remained strong, reaching $81 billion in Q4’21, slightly off the previous record of $90 billion set in Q3’21 while the percentage of investment by corporates reached an all new high in Q4’21, with corporates participating in 29.4 per cent of all VC deals globally, the KPMG quarterly VC report added further.

Trends to watch for in 2022:

According to the report, VC investment in Asia will likely remain strong heading into Q1’22. In China, ESG is well-positioned to see an increase in investment, given the focus of China’s Central Government on greening the economy and goal to become the largest
market for electric vehicles.

Back in the country, following 2021’s record number of unicorn births, there are high expectations that India’s stable of unicorns will grow even further in 2022 as rapidly maturing companies in a wide range of sectors attract larger investments. Fintech, ed-tech, and e-commerce are expected to remain hot areas of VC investment, although all three sectors could also see some consolidation as smaller players look to gain scale or are acquired by their larger and better-capitalized counterparts, the report added.