According to data from market intelligence provider Tracxn, there were 83 rounds in Series D stages and above with an average ticket size of $74.4 million this year, surpassing 73 deals with $71 million in 2023. However, it fell short of 2022 levels where there were 137 rounds with an average deal size of $89.5 million.
“Given the complicated cap tables, the need to return capital to LPs and companies trying to manage selling pressure once they are listed, companies are pushing for pre-IPO rounds to enable secondary transactions,” said Pankaj Naik, managing director and co-head for digital and technology investment banking at Avendus Capital. LPs, or limited partners, are entities or individuals that invest in venture capital and private equity funds.
“We are seeing a return of frantic deal activity. We are anticipating volumes to go up,” he said, adding that newer pools of capital such as HNIs (high-net-worth individuals) are providing another alternative to crossover investors for high-quality companies. A cross-over investor is someone who is invested through the pre-IPO stage till after the IPO.
Most transactions this year included secondary swap of shares. Looking ahead, too, the Indian private markets appear ripe for secondary transactions with several new-age startups like OfBusiness, Infra market, Purplle, PhonePe, Bluestone, PayU and Meesho expected to go public in the next two to three years.
That is leading to a rush of new funds aimed at secondary transactions. For instance, Piyush Gupta, a former managing director of venture capital firm Peak XV, launched Kenro Capital last month to target late-stage secondary deals. In September, Oister Global alongside Tribe Capital also launched a $500 million India-focused secondaries fund.
With the ongoing macroeconomic volatility, Oister Global chief executive officer (CEO) Sandeep Sinha explained that the revival in growth-stage (or late-stage) rounds is mainly a function of investors looking to get quicker exits. The institutional investor is known for backing investment firms such as Blume Ventures and Stride Ventures.
“Given the ongoing macroeconomic volatility, investors are hesitant to commit long-term capital or be locked in for a 10-year time span in the case of funds, especially when the returns are moderate,” Sinha said. “They are increasingly preferring higher visibility, shorter tenure assets with a faster path to recovery.”
He added that with the overall secondary markets picking up, the fund is looking at investing about $200 million across different transactions over the next year.
Some notable secondary transactions that have happened over the past year include Temasek and Fidelity’s $200 million purchase of Lenskart’s shares in June, and Mintifi’s $80 million secondary as a part of a larger fundraise this month, among others.
Mid-market deals
Even mid-market transactions in Series B and C stages have attracted greater investor interest compared to last year, although they still fall short of 2022 levels when capital was more free flowing.
While the volume of deals in these stages was fewer, the average ticket size for Series C rose to nearly $21 million from $15.2 million in 2023. It was higher at $36.8 million in 2022. Similarly, Series B also saw a higher average deal size of about $16 million from $12 million a year earlier and $20.9 million in 2022, data from Tracxn showed.
“The years of 2021-22 were probably anomalies. If we look at growth companies raising larger rounds today, the path-to-IPO companies are seeing a lot of cap table action. For such companies, there is a decent mix of primary and secondary,” said Vikram Gawande, vice president at Blume Ventures.
The venture capital firm, which has backed prominent Indian startups like Purplle, Batterysmart and LeverageEdu, is a big proponent of encouraging companies to tap the public markets at an earlier stage to facilitate quicker exits.
“There has been a transition from growth at all costs to measured growth with a clear path to profitability in the current vintage, and we are seeing that play across many of our portfolio companies,” Gawande said, adding that there is a healthy pipeline of companies and only those growth companies with strong fundamentals are getting funded in the current climate.
Broadly, investors have also noted that the increase in average deal size across Series B and beyond can be attributed to greater participation by local family offices. Over the years, stabilizing returns from active asset management in India has led to growing demand from HNIs for more complex and differentiated investment options, according to a report published by Avendus this month.
The report estimates that HNIs currently allocate an estimated 7-8% of their total assets under management (AUM) to alternatives, indicating significant underpenetration in this segment. Avendus projects doubling of total HNI and ultra-HNI wealth in India to $2 trillion by 2027.
Early-stage deals
Meanwhile, the earlier stages of funding across seed and Series A continue to show significant strain with an average ticket size that has reduced or stagnated over a three-year time span.
As per data from Tracxn, seed-stage deals fell steeply to 760 deals from the 1,273 funding rounds of 2023. The average deal size showed little improvement to $1.4 million from $1.1 million in the past two years.
Series A also mirrored similar patterns with 275 rounds this year compared to 305 in 2023 and 469 in 2022. The deal size fell to $6.1 million from $6.5 million last year and $7.4 million in 2022, Tracxn data showed.
Early-stage investors such as Antler India, which invests in pre-seed rounds, also alluded to the dull momentum across the early stages, although the venture capital firm expects to see an uptick in deal volumes in the coming year.
While pre-seed has seen traction, the slowdown in seed and Series A has made the journey complex for companies to build products and services with lesser capital while growth-stage investors deploy more selectively.
“Sometimes, founders sit on the fence before starting companies because it’s not clear where the growth capital will come from. It has been hard to raise large growth rounds over the last two years as that capital has predominantly come from global pools,” said Ritesh Banglani, a partner at Stellaris Venture Partners.
Last month, the venture capital firm raised its largest-ever $300 million fund to continue backing seed and Series A startups. “The uptick in growth-stage investment activity that we have seen in the past six months will give confidence to both founders and investors and drive more early rounds in startups in 2025,” Banglani concluded.
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#Latestage #funding #revives #preIPO #rounds #seed #rounds #struggle