Hopeful Deal Drought May Resolve Itself In 2024: Gaja Capital's Gopal Jain

There's a deal drought in the private equity market currently, riding mostly on uncomfortable valuations, according to Gaja Capital's Gopal Jain, who is hopeful it may resolve itself in 2024.

"On one hand, there's a stupendous supply of capital; on the other hand, there's a lot of demand for capital, but deals aren't happening, and in large part, because of valuations," he told NDTV Profit at the sidelines of the IVCA Conclave 2024 in Mumbai.

"We saw a phase in which valuations really went up because of very low interest rates, and as capital is repricing itself and as time passes, we will see both sides come together, and this deal drought may resolve itself in 2024," said Jain, managing partner at Gaja Capital, a Mumbai-based, India-focused private equity firm. 

"It's getting resolved at the upper end of the market; I think at the lower end of the market it's a little difficult to resolve because you can't staple cheap secondaries to a primary deal, but I'm hopeful that this deal drought will soon be a thing of the past," he said.

The PE firm that invests exclusively in Indian mid-market companies has recently led a $21 million round in student housing platform Amber. It is also an investor in digital banking infrastructure enabler Signzy, e-commerce delivery provider Xpressbees and martech startup LeadSquared, among others.

Elaborating on the high private market valuations, Jain said currently the belief is that unicorns, soonicorns and other such startups gained their valuations on the back of cheap capital.

"There's this term in the U.S. called zirpcorns (zero interest rate policy + unicorns), which was coined to bring focus to the fact that in the absence of cheap or zero-rate capital, many companies will get repriced," Jain said. "Currently, the estimate is that about a third to two-thirds of the companies will get repriced; to what extent depends on the quality of the business."

Many businesses will make the correction that is required to raise capital at the right valuation in a changed market, he said. "For many others, the best choice is to accept the new reality and raise it when required rather than pushing it out to a point where there won't be many choices," Jain said.