PE-VC investors see decline in fundraising activity, says Crisil Survey

As much as 90 per cent of private equity and venture capital investors envisage a decline in fund-raising activities over the next 6-12 months on account of the Covid-19 pandemic, according to a Crisil Research survey report.

Though the market is sitting on sufficient un-invested capital or 'dry powder', attractive investment opportunities are seen as difficult to find in the current environment.

About 58 per cent surveyed expect existing investment value to decline over the coming 12 months. However, about half of them see a moderate recovery beyond the 12-month horizon.

More than three-fourths of the respondents see a rise in mergers and acquisitions activity (M&As) in the 1-2 years. This comes as exit options would continue to be limited given the pandemic-led uncertainty in growth. PE and VC funds may opt to stay invested longer to achieve desired returns.

"With exit options limited because of the weak capital market and low interest in secondary transactions from other funds, investors would look at M&As as a strategic route to check out. M&A transactions with stronger players would be the more-likely option subject to demand contours and growth opportunities, the extent of synergy, and availability of capital for acquisition," said Rahul Prithiani, director, Crisil Research.

E-commerce will remain the sector of choice with investor interest (58 per cent), followed by healthcare (46 per cent) and B2B tech and IT (38 per cent). Liquidity issues (70 per cent), muted demand and changing consumer behaviour (58 per cent each) were listed as the top risk factors for portfolio companies of investors at least in the next 12 months.

The survey was conducted between May and June this year and the credit rating firm received responses from 26 independent funds and respondents.

PE-VC investments have grown to $40 billion from $15 billion in fiscal 2015 in fiscal 2020. The FY2020 investments figures would have been even higher, had February and March not been pandemic-hit, according to the report. Investments declined 45 per cent in February and 70 per cent in March, over the average monthly investments in the past three fiscals.

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