Legacy firms outperform modern, got 75% of PE-VC investments in 2023

75% of PE-VC investments were directed towards conventional sectors such as healthcare, retail, energy, advanced manufacturing

Legacy companies did better than modern ones in 2023 in terms of getting private equity and venture capital (PE-VC) investments, the Times of India (TOI) reported on Thursday.

According to a report by American management consulting company Bain & Co, last year, 75 per cent of PE-VC investments were directed towards conventional sectors such as healthcare, retail, energy, and advanced manufacturing, compared to 60 per cent in 2022.

PE funds, majorly favouring legacy enterprises, primarily led these investments. However, over time, PE funds have increasingly scrutinised opportunities within emerging technology firms and committed investments to companies within this domain. Startups such as Dream11 and Sugar have benefited from the support of PE investors such as private equity company TPG and American multinational private equity firm L Catterton.

In 2023, healthcare investments reached a record $5.5 billion, while a series of private equity investments in Reliance's retail division bolstered the proportion of consumer-focused deals. Venture capitalists mostly direct their investments towards startups, which inherently carry higher risk. However, private equity firms tend to allocate their investments towards established companies, according to TOI.

Despite a decrease in VC funding, the combined tally of PE-VC investments in 2023 amounted to $39 billion, down from $62 billion in 2022. However, India's portion of PE-VC investments in the Asia-Pacific region has expanded steadily over the last five years, mirroring Japan's growth trajectory. In contrast, China's share decreased to 31 per cent in 2023 from 55 per cent in 2018.

The report quoted analysts from the firm as saying, “Favourable policies in India such as production-linked incentives, export promotion initiatives, and customs duty rationalisation drove some shift in economic activity and subsequent investments to India... global firms diversified production outside China.”

Despite analysts raising concerns about sluggish global GDP growth and geopolitical tensions in West Asia posing risks to investor appetite, resulting in a cautious approach to capital deployment in 2024, the overall investment landscape may still fare better than the preceding year. There are indications of emerging opportunities in 2024, surpassing those seen in 2023, the TOI report quoted Sai Deo, partner at Bain & Co, as saying.