India's PE/VC market: The quest for refined performance metrics

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₹12,370 crore to a staggering ₹7.5trillion by end FY23. This growth trajectory has been anchored by the Alternative Investment Fund (AIF) guidelines introduced in 2012, which standardized the industry across various categories and led to an impressive ₹7.6 trillion in cumulative commitments by mid-2023.

The Indian Venture Capital Association (IVCA) has been at the forefront and driving the industry to adopt performance benchmarking exercises to critically evaluate funds within the peer groups. India's fund of funds landscape has also seen a significant uptick, spurred by developmental initiatives like the DPIIT-fund of funds programme operated by SIDBI, with more than a third of these funds spearheaded by first-time managers.

The International Financial Services Centres Authority (IFSCA) in Gift City has carved out a niche as an offshore fundraising hub for AIFs, further diversifying the industry's capabilities. Yet, despite the leaps in growth and structure, the PE/VC space in India still grapples with the absence of a uniform framework that fully comprehends and regulates the industry's commercial intricacies.

This gap leaves fund managers juggling the demands of various regulatory bodies, from the Reserve Bank of India to the Securities and Exchange Board of India, and beyond. Unresolved issues linger, such as the treatment of carried interest as a fee rather than a capital gain, and the need for a more nuanced approach to management fees that reflects the true value fund managers bring to enterprises.