PE and VC deal ready for new dive in June quarter

Bengaluru: Private equity (PE) and venture capital (VC) investments, which already fell 20-40% during the March quarter, are expected to stop in the June quarter, as many investors suspend transactions as you can see. The impact of Covid-19 on the economy, the stock markets and specific sectors as well. Several deals are also suspended due to logistical issues, such as obtaining tax certificates or traveling for due diligence, while in some extreme cases investors are also pulling out of the deals.

More than 78% of investors think this is a bad time for early stage deals and capital growth, according to a survey of 100 PE and VC companies conducted by the Indian Venture Capital Association (IVCA) and Praxis. Investors expect a significant pause in deal trading in the June quarter, even as they wait and watch how the sharp drop in economic growth affects trading prospects and the drop in stock markets translates into sobering valuations.

Some companies will deteriorate, but there will be others that will remain investible, if not more, because valuation expectations will be more reasonable. This will be more difficult to calculate the capital spending cycle because there will be a setback, as companies will not be sure to invest additional capital until they are confident in utilizing existing capacity, said Padmanabh Sinha, former president of the industry body. Indian Venture Capital Association. (IVCA).

In addition to the slowdown in new investments, 45% of investors also think that the growth of existing portfolio companies for the next two years will continue to be lower compared to fiscal year 20, while another 89% think that Plans for an IPO or IPO will have to be delayed, according to the IVCA survey. For investors like buying KKR from the US In the US, the priority is to close existing transactions already in the final stages, in addition to helping portfolio companies ensure that their employees are safe and liquid enough to spend the next three to six months of uncertain period.

There will also be a longer-term structural change in consumer behavior due to this crisis, so we will have to help portfolio companies adapt to the new reality. We are carefully looking for new opportunities, especially companies that need short-term and long-term capital solutions, which can be seized once the crisis unfolds, said KKR India CEO Sanjay Nayar, adding that the government has an opportunity. of revealing major reforms for the manufacturing and financial services sector. Investors are also informing their portfolio companies that raising money during the next quarter will be difficult, and the terms of a transaction may not be favorable. Existing investor-led financing deals to help companies overcome the crisis are expected to increase in the coming months, as will cost cuts, including layoffs as companies fall.

Optimizing for the company track (time before companies run out of cash) is more important than valuation right now. A flat round that extends your runway to at least 12 months is a good result these days, he advised major venture capital firms such as Sequoia Capital India, Accel India, SAIF Partners, Lightspeed Venture Partners, Matrix India and others to new companies through their collective effort Action Covid Team (ACT). Several of the top investors and entrepreneurs have also written to the government for a starter sector aid package, which includes financing part of employees' wages in addition to income and tax relief.

Some founders already face difficulties in raising money. A Gurugram-based founder told TOI that two angel investors who were involved in financing the startup withdrew from the deal. Another investor is offsetting the amount they were investing, but one cannot assume that a transaction closes until the money is in the bank in this climate, said the founder, who requested anonymity.

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