A paradigm shift in the investment ecosystem: What can we expect?

Although these are sudden shifts over the past 18 months, the pandemic has paved the way for several innovations and new patterns that are revolutionizing the investment and startup ecosystems.

Over the past few years, particularly since the onset of the COVID-19 pandemic in early 2020, the Indian investment ecosystem has undergone radical changes. Although large-scale disruptions slowed down investments at the outset of the global crisis, the investor community not only recovered from the initial blow but evolved to adapt and thrive. In fact, the Indian startup ecosystem saw the rise of 26 Unicorns, with startup funding reaching USD 16.9 billion with.

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With the ongoing pandemic bringing a paradigm shift in the way the investment ecosystem works, it’s essential to analyze the changes to predict what we can expect from large-scale crises in the future. So here are some trends in the investment ecosystem to keep an eye on.

Cash influx in equity markets

The pandemic and subsequent lockdowns have had a significant impact on businesses. While most of them, especially those that have adapted to the disruption quickly, have managed to recover with a surge in fledgling businesses, interest rates have been declining steadily, resulting in an abundance of liquidity in a low-return market. This forced investors to look for alternatives in the equity market, making it a reliable option among investment classes. With cash flowing into the equity market, investors could occupy substantial positions in it. Moreover, the influx also facilitated wealth creation in both public and private markets.

An uptick in Global Private Equity Transactions

With their transactional worth crossing USD 513 billion in the first half of 2021, almost doubling from the 2019 value of USD 278 billion, Global Private Equity Transactions have seen a significant surge after the outbreak of the pandemic. This will give the market a significant edge as private equity transactions allow companies to accept direct investments without the market risk for investors. It also shows that although the market was impacted initially, it’s making a strong comeback.

The rise of the Indian startup ecosystem and a new generation of investors

Several innovative startups have emerged in India in recent years, making the country the world’s third-largest startup ecosystem. With schemes such as ‘Make in India’ and ‘AYUSH’, India is on the path to becoming a startup hub. Besides, the success of startups like BrowserStack, Zeta, Moglix and Urban Company helped elevate the economy and paved the way for a new generation of investors – millennials and GenZ. The new generation’s foray into the investment sector has further led to progress and innovation as they are not only tech-savvy but also work with more foresight.

Democratizing VCs and investing in companies as an asset class

Until recently, VCs were more interested in the high-risk, high-reward approach. However, this approach has changed, and investors with a strong portfolio have started allocating at least 5-7% of their funds in private equity. Moreover, investors are also confidently putting in their money in VCs. As a result, the ecosystem is now evolving into a highly reliable option for those with a strong portfolio.

There has also been a rise in the number of people investing in companies as an asset class. In its simplest sense, an asset class is a group of financial instruments that are similar in nature. So, using the same approach and investing in multiple prospective companies can be a game-changer as it would prove to be more profitable. For instance, if investors begin to build a portfolio comprising 80-100 companies, they can expect returns ranging between 30% and 35%. Besides, this also increases the probability of creating unicorns astronomically.

Prominent startups going public

Given the number of startups going public, it appears that the Indian market has finally caught the IPO fever. Companies like OYO, Mobikwik, Pepperfry, and most recently, Zomato, have all had reasonably successful IPOs. The upcoming months will continue to see marquee startups in the country’s ecosystem going public, thereby bringing a shift in the investors’ mindset and leading them to increase direct private investments.

Final word

Although these are sudden shifts over the past 18 months, the pandemic has paved the way for several innovations and new patterns that are revolutionizing the investment and startup ecosystems. The upcoming months will see these trends prevail and the investor ecosystem witnessing robust growth and continued evolution.

by, Nandini Mansinghka, Co-Founder and CEO – Mumbai Angels Network