Private Equity Markets Explained: From Fundraising to Exit Strategies in 2024

New Delhi [India] November 6: In 2024, India’s private equity (PE) and venture capital (VC) markets are stabilising, with investments steady at $23–24 billion, reflecting a gradual recovery from last year's recalibration. Global funds now contribute nearly 75% of PE deal value, up from 50% in 2023, according to Bain & Company. Seven deals surpassed $500 million, indicating a strategic shift towards larger, high-quality assets, leading to a 15% increase in average deal size—from $235 million in H1 2023 to $265 million in H1 2024.

Private capital assets under management (AUM) for unlisted companies in India have surged, tripling over 15 years to reach $124.3 billion by the end of 2023. While India has long excelled in venture capital, private equity is gaining momentum, demonstrating resilience despite global economic uncertainties.

What is the Private Equity market?

The stock market is familiar to many, where shares of publicly listed companies are actively traded, however, many businesses remain privately owned before going public. Startups, in particular, navigate several growth stages and often seek capital to fuel their expansion. Private equity investment allows them to support these companies by purchasing equity ownership in exchange for funding. The private equity market, therefore, encompasses investments in firms with unlisted equity shares that have yet to enter the public arena. For instance, Swiggy successfully traded its unlisted shares during its pre-IPO round, highlighting the potential of private unlisted assets investments.

Private equity investments can be made through several channels:

• Fund of Funds: These invest in multiple private equity funds, offering diversified exposure to various firms and strategies.
• Private Equity ETFs: These exchange-traded funds invest indirectly in unlisted private company through publicly listed private equity firms, providing smaller investors with access and liquidity.
• Special Purpose Acquisition Companies (SPACs): SPACs raise funds via IPOs to acquire private firms, enabling those firms to go public without the traditional IPO process.
• Crowdfunding: This method pools small investments from many individuals to fund private companies or projects, though regulations differ across regions.

Key Investors in Private Equity 

Private equity markets attract a variety of investors, each with distinct roles and strategies:

• Venture Capital backs early-stage startups with high growth potential, often in tech, healthcare, or biotech, offering both capital and strategic support.
• Sovereign Wealth Funds (SWFs), owned by governments, invest in private equity to diversify assets and generate sustainable returns, supporting national economic goals.
• Buyout funds target majority stakes in established companies to enhance operations and drive value for profitable exits. In H1 2024, the share of buyouts in total private equity deal value rose to approximately 55%, up from about 47% in H1 2023, reflecting growing investor preference for this strategy.
• Specialized Funds focus on niche markets, targeting specific sectors like technology, healthcare, energy, or infrastructure.

These investors shape private equity or unlisted stocks by pooling capital, providing expertise, and seeking long-term returns across diverse industries.

How Does the Private Equity Market Operate?

Private equity firms manage funds to deliver returns for their investors, but their approach is more specialised than traditional investments. Krishna Patwari, Founder and Managing Director of Wealth Wisdom India Pvt. Ltd. (WWIPL.com), outlines the process in key stages:

• Fundraising:Capital is pooled from high-net-worth individuals, pension funds, endowments, and insurance companies into a fund managed by the private equity firm.
•  Identifying Opportunities:Firms target companies with growth potential, operational inefficiencies, or those in distress, where strategic improvements can unlock value.
• Due Diligence:A thorough analysis of the target’s financials, market position, and operational risks ensures the investment aligns with the firm’s strategy.
• Investment Execution:The firm injects capital, either as equity, debt, or a combination, to acquire a stake in the target company.
• Value Enhancement:Collaborating with the company’s management, the firm drives operational improvements and strategic initiatives to increase value.
• Exit Planning:With a typical investment horizon of 3 to 7 years, firms plan exits through trade sales, IPOs, or recapitalization, ensuring optimal returns. Exit deal values increased by approximately 40% year-over-year, rising to about $13.3 billion in H1 2024, with Healthium Medtech's notable exit valued at approximately $840 million.
• Profit Distribution:After exiting, returns are distributed among investors, with the private equity firm earning a share as performance fees.

Why Invest in Private Equity or Unlisted Shares?

Investing in private equity or unlisted shares requires careful consideration. Krishna Patwari highlights several compelling reasons for entering this market:

• Private equity investments have the potential for high returns.
• It also provides investors with early access to promising industries with unlisted company shares.

Krishna Patwari further adds, “Unlisted share offer distinct advantages. These companies often exhibit substantial growth potential, particularly in emerging sectors. When a company succeeds, its shares can appreciate significantly, allowing investors to benefit from its growth from the outset. Additionally, unlisted share market provide an excellent opportunity for portfolio diversification, helping to mitigate overall risk. This investment avenue serves as a straightforward pathway to capitalize on innovative unlisted company list with promising products or services.”

Before investing 

Evaluating private equity investments requires a thorough analysis of several critical factors to gauge potential risks and returns. Key steps include investment thesis—such as the rationale to invest, assessing the management team's expertise, analyzing historical financial performance, and considering exit strategies. Identifying risks—such as industry-specific, market, regulatory, operational, and financial—is essential, along with developing effective mitigation strategies.

Therefore, it is advisable to invest strategically and cautiously, using real-time data and insights from platforms like WWIPL.com for a simple, safe, and efficient approach to identifying the best investment opportunities. Its flagship, PRIMEX 40 Index, India's first live private market index, offers real-time calculations for immediate market insights and diverse sector representation, providing a comprehensive view of India’s dynamic private sector.

As India's private equity landscape matures, funds are diversifying into sectors like healthcare, manufacturing, new-age technology, and SaaS. Government-linked investors are expanding their focus, while global interest in private credit is prompting local funds to explore credit strategies, growth, infrastructure, and impact investing. This shift reflects a dynamic evolution in the unlisted stocks and PE market.

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