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PE, Venture Cap-backed cos faring better than firms going solo

Companies backed by VC funds and private equity are growing significantly faster than the ones that do not have such fundings and also the publicly listed firms including those part of Sensex and Nifty, says a study.

New Delhi: Companies backed by VC funds and private equity are growing significantly faster than the ones that do not have such fundings and also the publicly listed firms including those part of Sensex and Nifty, says a study.

Besides, such firms exhibit a more efficient working capital management as compared to listed peers. Further, revenue growth of PE-VC backed companies are more than twice that of other benchmarks.

The study by Venture Intelligence was conducted under the guidance of Professor Thillai Rajan, Department of Management Studies, IIT Madras.

In the six years between 2011 and 2016, PE-VC firms invested over USD 72 billion in Indian companies -- over 6.5 times what corporate India raised via initial public offers (IPOs) during the same period, the study noted.

"The PE impact study demonstrates how PE and VC firms adopt a long-term perspective in their investment decisions. The presence of a PE/VC investor provides a kind of certification which, while broadening the equity base, also helps the investee companies access other sources of funding including debt capital

"PE/VC investors also forge active partnerships with their investee companies to improve growth and business strategy, besides opening up new opportunities," Rajan said.

PE investment, which is largely associated with smaller firms, is associated not just with top line growth but also with growth in asset creation.

PE-VC investors invest even in times even when there is a squeeze in conventional markets, thereby helping the companies to tide over the industry down cycles, the report noted.

As promoters of small-to-mid sized companies typically face limitations in terms of the quantum of equity contribution they can make, PE-VC investors step in to provide the long term funding require to catalyse growth, it added.