Early Stage Deals Under $10 Mn Doubled in India with E-commerce Driving Volumes: Report

The number of early stage deals under $10 million almost doubled to 244 in India in 2012 with most of them in the ecommerce industry, according to a new report. The volume of deals grew from 531 in 2011 to 551 in 2012, a 4% increase in line with the mood of caution in the markets, the report on Indian Private Equity by Bain & Co said.

The top 25 deals made up only $4.3 billion, as opposed to $5.9 billion in 2011 and the average deal size at the top 25 dropped by almost a quarter to $175 per deal last year, the India Private Equity Report 2013 said.

Ecommerce Drives Early Stage Deal Volumes

As usual, healthcare and IT/ ITeS attracted the most investment and a majority of deals under $10 million were made in the ecommerce space. The number of under $10 million deals in e-commerce nearly doubled from 12% in 2011 to 23% in 2012 of the total deals.

About 98 of the 225 IT and ITES deals were made in the e-commerce subsector—a volume growth of 44% from 2011. The largest deal in 2011 was SoftBank’s $200 million investment in InMobi, a mobile advertising network.

In 2012, the largest single e-commerce deal was Tiger Global and Accel India’s joint investment in Flipkart, the five-year-old online retail venture. Another notable investment was the $60 million that Sequoia Capital and SAP Ventures put into JustDial, a local helpline and search engine. Justdial IPO opens on May 20.

Deal size in e-commerce remains small and, in fact, has grown slightly smaller since last year. In 2012, 85% of e-commerce deals were less than $10 million, up from 75% in 2011. The stage of investment has also changed slightly: In 2012, around 80% of e-commerce deals were early-stage, up from 70% in 2011, the report said.Bain & Co E-commerceOf the 360 deals valued at less than $10 million, over half were in IT and ITES. Education is also a growing space in this deal-size bracket, with 14 smaller investments over the course of the year. More than 40% of healthcare deals (20 deals out of 45) were valued at less than $10 million as well.

Deal activity is expected to be cautious this year.

Other Key Highlights of the report

VC and PE Deal value declined by 30% from 2011 to $10.2 billion although deal volumes were robust.

The total funds mandated for investments in India were $3.5 billion in 2012, which is less than half of the roughly $6.9 billion committed in 2011.

Investment is rising in consumer sectors, particularly in health care. Investments in health care nearly tripled over the past year, rising from $0.46 billion to $1.3 billion in 2012.

Globally, around 675 funds raised approximately $320 billion in 2012, according to UK research firm Preqin. But a close examination of the research reveals that of that total, only around $3 billion was mandated for investment in 1 India, whereas the sum mandated for India in 2011 was $7 billion.

Read the full report here(pdf).