Availability of domestic capital is increasing in India for both private equity (PE) and venture capital (VC) firms, as a new pool of homegrown limited partners (LP) is looking to bet big on the country’s long-term growth story.
Even as the exact breakup of foreign and domestic LPs in the $10.5 billion capital raised by India-focused PE-VC firms last year could not be ascertained, experts say the share of local capital could be around 40% and growing. For certain Alternative Investment Funds (AIF), this could be as high as 100%, but it could be much less for foreign PE funds focused on India.
In any case, most experts agree the share of domestic capital is increasing in the country’s overall funding pool.
“Without doubt, domestic capital has become a force to reckon with in the fast-growing Indian PE & VC market landscape,” PR Srinivasan, founder and managing partner at mid-market PE firm Xponentia Capital Partners, told DealStreetAsia in an interview.
“Today, there are a lot of family offices coming up, besides the usual banks and insurance companies, among others, who are willing to invest in the sector. Unlike earlier times, the share of domestic capital has grown over the past few years,” he added.
The trend, experts say, goes on to highlight how India is tracking similar developments that took place in China, where domestic capital has become as large, if not larger than, foreign capital in alternative assets.
LPs (also known as fund-of-funds) typically include endowments, pension funds, and other institutional investors that allocate capital to PE and VC firms (known as general partners or GPs) to make direct investments in companies. LPs also invest in companies directly alongside GPs.
Xponentia is currently on the road to raise capital for its second fund that it expects to close by June this year.
While Srinivasan declined to comment on the final corpus the firm is looking to raise, sources had earlier told DealStreetAsia that it could be around Rs 1000 crore (approximately $122 million), surpassing an initial target of Rs 750 crore.
“In this fund, we have raised capital only from domestic LPs, and all I can say is that we are still in talks with a host of them as we gear up to make the final close soon,” said Srinivasan.
Headquartered in Mumbai, Xponentia was set up in 2018 by the investment teams of Carlyle, Citigroup Venture Capital International, and HSBC Private Equity to address the paucity of capital in the Indian mid-market corporate sector – both in terms of debt and equity.
The PE firm made the first close of its second fund — Xponentia Opportunities Fund 2 — in July last year and was initially targeting the final close by December.
So far, Xponentia has deployed $10 million from its second fund across two companies, namely Altigreen (commercial electric vehicle maker) and Zype (new-age fintech platform).
Recently, Xponentia received regulatory approvals for its third investment too, which could be announced as early as this week, said a source. However, this could not be independently verified.
“The third investment is also on its way. It (Xponentia) has committed capital to another company,” the person said, adding that “the deal has been in the works for a while now.”
Xponentia closed its first fund in 2019 with a corpus of Rs 351 crore. Together with its LPs, who co-invested in certain deals, the PE firm has parked a total of Rs 450 crore across eight companies.
Its portfolio firms include mortgage startup Easy Home Finance, commercial electric vehicle maker Altigreen, and baby products brand R for Rabbit, among others.
From the first fund, Xponentia has so far clocked one full exit from Spoton Logistics when Delhivery bought out the company and one partial exit from Barbeque Nation when the restaurant chain made its public market debut in 2021.
Secondary deals, M&As in focus
Even as entrepreneurs are taking a cautious approach towards making their debut on the stock market, exits for private equity and venture capital in the Indian ecosystem have not been as dismal as feared so far this year.
In 2023, there have been 34 PE-VC exit deals worth $2.8 billion. Out of the 34 exit deals, 10 came by way of secondary market sales, 10 from strategic sales, and 13 from public market sales, according to Venture Intelligence data.
Exits in 2023 include China’s Alibaba Group sale of a 3.1% stake in Indian digital payments firm Paytm for a total of $125 million; SoftBank and Tiger Global’s stake sale in logistics firm Delhivery; and Gangwal family’s stake sale in Indigo for $356 million.
“In the current scenario, M&A is increasingly emerging as the preferred route for exits in India, and the trend is expected to carry on this year,” said Srinivasan.
Xponentia is looking to make 8-10 investments from the second fund with cheque sizes ranging from Rs 100 crore to Rs 250 crore, depending on the quantum of the stake it plans to pick up in companies.
“We want to work with first-generation entrepreneurs,” said Srinivasan, adding that the firm’s focus is on sectors such as financial and business services, healthcare, consumer and retail.
The total amount pumped in by LPs into PE and VC fund managers in India in January and February this year stood at $830 million, data from Venture Intelligence shows. Among the most recent fundraising developments, Nexus Venture Partners, which has backed prominent unicorns such as Delhivery and Unacademy in India, closed its seventh fund at $700 million.
Among firms that have recently garnered capital, PE major TVS Capital Funds closed the largest rupee-only fund at about Rs 2000 crore, while VC firm Chiratae Ventures expects its new growth fund to have a 50% mix of global and rupee capital.