At a time when exits by PE/VC firms from their portfolio companies are at a high, Freny Patel looks at predominant issues weighing on the minds of investors as they make their departures

The moment a billion-dollar exit looms, it does not just trigger an economic event. It ignites a high-stakes, multi-front struggle for the legal fraternity, transforming corporate lawyers into generals in a frantic, often protracted, battle for every clause and every dollar.

In the past two years, the Indian market has witnessed an increasing pace of exits in the private equity and venture capital space. Industry numbers indicate that 2024 saw PE/VC exit values in India reach about USD33 billion, a 16% increase from the previous year, driven largely by public listings and open market exits.

Vivek Soni, a partner and national leader of private equity services at EY India, comments in a recently released EY-IVCA monthly PE/VC roundup: “PE/VC-backed IPOs have grown strongly, supported by buoyant capital markets, higher valuation multiples in mid and small-cap companies, and strong investor demand for high-growth businesses.”

PE/VC exits stood at USD1.9 billion across 17 deals in August 2025, with open market exits accounting for 85% of the total exit value in August, according to EY’s monthly roundup.

While the deepening of Indian markets has enabled PE/VC funds to secure efficient and smooth exits at good valuations, Soni says that “the sentiment among PE/VC investors continues to be cautious”. This is largely on account of global headwinds such as “geopolitical uncertainties, shifting trade tariffs and immigration policies”, as well as the continued rupee depreciation dampening confidence, he adds.

When billions of dollars exit an economy, orchestrating realisation of investment capital by PE/VC funding, it is seen as a vital sign of a market’s maturity. However, for the legal fraternity, the process is far from a simple exchange. Rather, it is a rigorous exercise in contract enforcement, risk mitigation and regulatory navigation.

The surge in PE/VC exits brings to the forefront an evolving landscape of legal challenges, says Muqeet Drabu, the leader of M&A and PE practice at Nishith Desai Associates in Mumbai.

“There has been a shift from broad, catch-all exit provisions to more carefully structured, waterfall-based and enforceable mechanisms,” says Drabu.

Earlier mechanisms, such as open market exits or general optionality clauses, often “proved difficult to enforce in practice due to vague drafting, regulatory challenges, promoter resistance, and India’s slow judicial process,” says Drabu, whereas today the focus is on “pragmatic exit clauses, particularly structured ‘exit waterfalls’, which prioritise clarity and enforceability while reducing the scope for disputes”.

The issue of PE/VC exits needs to be viewed from a larger ecosystem perspective and in a holistic sense. Amol Kulkarni, a director (research) at CUTS International in Jaipur, agrees that exits are a sign of market maturity and adds that, in some cases, they are also reflective of “policy reversals”.

“PE and VC firms often invest in sectors with an unclear regulatory landscape, aiming to capitalise on their position as first movers. They typically like to benefit from risk arbitrage,” Kulkarni tells India Business Law Journal.

As the market matures, regulators and governance become more sophisticated. “This leads to the implementation of new regulations on funding, operations, disclosures, exits and lock-in clauses,” says Kulkarni. While these changes are beneficial for the overall ecosystem, they “may not align with the initial objectives of the investors, prompting them to exit,” he says.