<div><strong>Paramita Chatterjee</strong></div><div> </div><div>Deal makers seem to be in the hub of action of late, thanks to opportunities springing up for risk capital investors such as private equity (PE) and venture capital (VC) funds.</div><div> </div><div>The number of PE/VC investments jumped to 302 in the third quarter of this fiscal (July-September period), close to double the number of investments that were sealed during the same period last fiscal, thanks to the rise of new age sectors such as internet and mobile that are increasingly evincing investor interest these days. In the corresponding quarter last fiscal, as many as 157 PE deals were sealed, as per data available with Grant Thornton. In terms of value, PE firms infused $5,675 million, 82% jump from the July-September 2014.</div><div> </div><div>The increase in PE deals comes at a time when the overall M&A market remained tepid with the number of deals showing a decline during the previous quarter of this financial year. The total number of M&A deals dropped to 152 in the July-September period 2015 from 165 in the same period last year.</div><div> </div><div>“Indian assets are expected to remain in focus as Inbound and Domestic M&As accelerate on the back of pickup in alternate buy out financing by PEs, and increased capital market activity – both volume and value will clearly be on an uptrend here,” said Prashant Mehra – Partner at Grant Thornton India. “More visibility, on-ground action, visibility of economic growth and reforms will push domestic corporates to look at inorganic growth means. Government’s actions on key policy issues and reforms such as GST, the new Companies Act, ITP for Tech start-ups, land acquisition, unblocking stalled projects, etc. should improve the ‘ease of doing business’ in India,” he added. This, he opined, will further accelerate the transaction activity in India.</div><div> </div><div>So far, year 2015 seems to be the year of startups with young entrepreneurs increasingly churning out winning ideas and attracting huge dollars in funding. So much so, that in the risk capital market, there is growing chatter that venture market is the place to watch out for. While this area has always belonged to angels and venture capital firms, now private equity firms which typically provide growth capital to companies are also increasingly looking at the sector.</div><div> </div><div>Apart from IT/ITes, the other sectors that saw investments flowing in from risk capital investors are banking and financial services, real estate and healthcare, among others.</div><div> </div><div><strong>Boom or Bubble?</strong></div><div>It is reasonable to expect that many of today’s minnows will be the big fish of corporate India tomorrow. Never before has the Indian startup space seen so much action. Many budding entrepreneurs are looking to ride the domestic consumption wave, and eyeing the immense potential in e-commerce. It is the underpenetration in the sector that is providing opportunities, and that sounds like good news. After all, it means innovation, revenues, jobs, and economic growth. Right? </div><div> </div><div>But industry analysts caution that the situation may be not be as rosy as it seems. There are too many startups, and many are ‘copycat startups’, chasing money-making opportunities and leading the boom. In other words, the success of one startup is prompting another to follow the same dream, resulting in fewer original ideas and inflated valuations. Considering that, there is reason to remain cautious about a bubble.</div><div> </div><div>Of course, that is not to say that all startups will fail. Some 20 to 30 per cent of ideas are sound, they are the ones that will stand out. “E-commerce companies that will be successful can be classified into two categories,” says M.K. Sinha, managing partner and CEO of IDFC Alternatives, a leading multi-asset class investment manager in the country. He adds that one category is those that address underserved areas, and the other helps extract economic value by improving capacity utilisation of idle assets.</div><div> </div>
