Companies backed by private equity (PE), including venture capital (VC) firms, are growing faster when compared with companies that did not have any PE-VC funding as also faster than publicly listed firms and stock market indices such as the Sensex, Nifty and CNX Midcap, according to a study by Venture Intelligence, a research firm.
On average, in the five-year period ended 2016, PE-backed firms saw sales growth of 40% while non-PE backed firms grew by 15%.
The study, conducted along with Prof. Thillai Rajan A. of the Department of Management Studies at IIT-Madras, said that in the period, PE-VC firms invested more than $72 billion in Indian companies, or more than 6.5 times what corporate India raised via initial public offerings in the same period. PE-VC investors have been the driving force behind many major new industries such as IT-enabled services, cloud computing, financial technologies, microfinance and e-commerce.
The CAGR for capital raised from IPOs in 2011-16 was about 8%, whereas the CAGR for PE-VC investment was 14.9%.
Significantly, the average annual growth rate of profits for PE-VC funded companies in the study was the lowest at -73%.
Arun Natarajan, MD, Venture Intelligence, said, “When a firm is backed by PE/VC, the top line growth has been phenomenal. The focus is on longer-term growth. However, they sacrifice the bottom line in the short and medium term.” Venture Intelligence also engaged with four entrepreneurs from across sectors to understand their experience in obtaining investments.
