Venture capital investments in India fell sequentially to $10.36 billion in October-December last year after reaching a record quarterly high of $15.39 billion in July-September, according to a KPMG Venture Pulse report.
However, venture capital investment in the October-December period was India's second-best quarter ever, the report said.
The increase in interest from venture capital investors in India is due to a developing economy, stable government policies, and a burgeoning middle class. Besides, shifting policy orientations in China are likely to have contributed to increased investment in India, particularly in industries that are not a priority for the Chinese government.
The report explained that while certain industries in China have seen venture capital investment dry up in recent quarters owing to regulatory changes, other industries have continued to draw attention. Those industries that continue to remain in favour include advanced manufacturing, electric vehicle manufacture, renewable energy, green technology, healthcare, and biotech, it said.
In terms of sectors, fintech, health-tech, business-to-business (B2B) services, and direct-to-consumer (D2C) platforms, remained a highly strong area of venture capital investment in India during the fourth quarter of 2021.
Globally, too, venture capital investment totalled $171 billion, slightly less than the previous peak of $180 billion in the July-September quarter, it said.
The report also said exit activity was brisk in Asia in 2021, with India's initial public offerings (IPOs) of online cosmetics business Nykaa and digital payments firm Paytm. Nykaa raised $722 million in its IPO in October, while Paytm raised $2.4 billion in November. The thriving stock market in India is likely to have fueled sustained interest in the venture capital business, as they have grown more confident that their investments in the nation will provide strong returns.
Amarjeet Singh, Partner, KPMG India, noted that over the last two years, India has stepped up in terms of its venture capital ecosystem and it's a very favourable market right now.
"The stock markets have been booming. Investors have gained confidence about potential exits. All of these are driving VCs and LPs (Limited Partners) to put loads of money into India’s VC ecosystem -- and one well-positioned to continue as we head into 2022,” added Singh.
India also witnessed 14 new unicorns born alone in the October-December quarter.
"The number of new unicorns in India demonstrates the rising diversity of India's startup ecosystem and the maturity of startups in a variety of industries," the report noted.
Venture capital investment is expected to be robust until 2022, with less developed markets like Africa and the Middle East expected to attract greater interest from investors. Fintech, along with B2B services, healthtech, cybersecurity, and AI solutions across industries, will likely remain one of the hottest investment areas.
Globally, environment social and governance (ESG)-aligned firms and venture capital investors are increasingly prioritising or targeting a larger variety of ESG aspects, and such investments are likely to rise as a result, the report stated.