PE/VC investments in Feb 2022 up 2.3 times year-on-year: IVCA-EY report

Month-on-month, the spike was 24%; Exits recorded in Feb 2022 were $1.4 billion across 10 deals, including three secondary ones worth $1.2 billion

Private equity and venture capital investments for the month of February 2022 were about $5.8 billion, 2.3 times the value recorded in February 2021 ($2.5 billion) and 24 per cent higher than investments in January 2022 ($4.6 billion).  Exits recorded were $1.4 billion across 10 deals in February 2022, including three secondary ones worth $1.2 billion, according to the IVCA-EY monthly PE/VC roundup.

Exits were primarily driven by secondary deals which includes the $800 million exit from IGT Solutions by AION. As the volatility in the mid-cap and small-cap indices continued in February 2022, there was only one PE-backed IPO and the study stated that the number of PE-backed IPOs to be lower in 2022 given the volatility in the capital markets, rise in uncertainty and waning investor interest in the primary markets.

Vivek Soni, Partner and National Leader Private Equity Services, EY said, “February 2022 recorded $5.8 billion in PE/VC investments, more than double the investments in February 2021 and 24per cent higher than the previous month. Pure-play PE/VC investments (excluding infrastructure and real estate sectors) and start-up investments continued to dominate the investment landscape in February 2022, accounting for 88per cent and 44per cent of PE/VC investment value respectively.

While the technology sector continued to receive maximum PE/VC investments in 2022, there has been a significant surge in investments in the fintech segment of the financial services sector that saw large deals in the emerging Decentralised Finance (DeFi) space. Fintech investments have grown at a CAGR of 125 per cent over the past five years, primarily driven by investments in the payments ecosystem with new segments like DeFi and neo-banking being the fastest growing, recording 20x growth in investments. More details on this are available in the spotlight section of this report.

“India’s position as an attractive destination for PE/VC investments is expected to remain strong in 2022 given its high growth, macroeconomic and policy stability. The recent state election results should underwrite more certainty around continuity of government reforms. With diplomatic talks resuming, there is hope emerging on the possibility of an early end to the geo-political conflict. However, uncertainty remains high and faster than anticipated interest rate tightening by the Fed, rising inflation and commodity prices amidst geo-political tensions, alongside a resurgence in COVID infections continue to remain potential risks to watch out for.”

February 2022 recorded 117 deals, 33per cent higher than February 2021 (88 deals) and 4per cent lower than January 2022(122 deals). 88per cent of the total PE/VC investments in February 2022 were pure-play investments (excluding real estate and infrastructure sectors) compared to 79per cent in February 2021.

By deal type, start-up investments continued to receive maximum PE/VC investments in February 2022 at $2.5 billion across 85 deals ($1.1 billion in February 2021 across 61 deals) and accounted for 44per cent of all PE/VC investments. Growth investments were the second highest with $1.5 billion invested across 15 deals ($1.1 billion across 14 deals in February 2021). Buyouts have recorded a strong surge in February 2022, recording $1.5 billion across seven deals (two deals worth $177 million in February 2021). PIPE investments recorded $82 million across four deals (six deals worth $113 million in February 2021). Credit investments recorded $148 million across six deals ($37 million across five deals in February 2021).

From a sector point of view, technology was the top sector in February 2022 with $1.5 billion in PE/VC investments across 19 deals ($48 million across four deals in February 2021), propped up by the large IGT Solutions buyout by Baring PE Asia. The second largest sector was financial services with $1.2 billion recorded across 26 deals ($245 million across 13 deals in February 2021), driven by investments in fintech which saw four large deals of $100 million+ with the crypto platform Polygon receiving the largest investment of $450 million. The Logistics sector that saw $723 million invested across six deals was the third largest, with major investments in the logitech space which is an emerging area for PE/VC investments.

Spotlight: PE/VC investment trend in fintech

PE/VC investments in fintech have been a rising trend over the past 5-6 years. Fintech investments have grown at a CAGR of 125per cent since 2016. The recent surge of PE/VC investments in 2021 and the first two months of 2022 - $9.2 billion – is more than the total investments in the sector in the previous five years (2016-2020) combined. As a result, within the financial services sector, the share of PE/VC investments in fintech has increased from 5per cent in 2016 to 66per cent in 2021 and as high as 90per cent in the first two months of 2022.

Payments, insurance and lending segments have been the largest in terms of PE/VC investment value in the fintech sector with the payments space receiving 48per cent of all PE/VC fintech investments since 2016.

While the payments segment continues to be the largest one within the fintech sector and amongst the fastest growing, the highest growth was recorded by neo-banking and DeFi segments that recorded 20x growth in 2021-2022 compared to total investments received by these segments between 2016-2019.

Online insurance, which was one of the earliest segments to receive PE/VC funding within the fintech sector was the only segment that recorded a decline in PE/VC investments, probably because of the declining moat and intensifying competition in the online insurance space.

While the fintech segment has recorded some large deals in recent years, more than 50per cent of the deals were lower than $20 million in ticket size.

Fundraise

February 2022 recorded a total fundraise of $347 million across four funds compared to $380 million raised in February 2021 by one fund. The largest fundraise in February 2022 was by Trifecta which raised its first VC fund worth $199 million to invest in IPO-ready new-age businesses.