Download - Private Equity

Sanjay H. Indulkar Company Secretary

Corporate Advisory ,Equity & Debts syndication

Infrastructure & Renewable Energy ,Regulatory & Compliance

Mobile 9867161367 email: [email protected]

linkedin-connect : in.linkedin.com/pub/sanjay-indulkar/1a/865/811

1Private & Confidential Report is only for the information purpose

Private EquityDouble edged sword

Disclaimer: The report contains information about Private Equity. The information is not advice, and should not be treated as such.

Private & Confidential Report is only for the information purpose 2

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In India,

Every morning in any business newspaper , you read good news thatcompany had raised million dollars from the Private Equity funds ,valuation of enterprise in multiple of their investments and PE investorsexists with multi fold return.

Some sad story you read - too no return on investment , unable to existand most important is legal issue may be related to the governance,disclosure and ownership of the enterprise and so on... Promoter thinkequity capital is free (what they believe) and for the investor is risk capital.While execution of the Shareholding Agreement (covenants & terms )PEfirms take almost care on drafting the agreements.

Some thing to share ........

Private & Confidential Report is only for the information purpose

4Private & Confidential Report is only for the information purpose

What is Private Equity ?

Private equity is medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies. The investors’ returns are dependent on the growth and profitability of the business. Companies at various stages of development can avail of private equity to finance their plans. Private equity financing at the various stages of maturity of a company say life cycle of the company

• Seed stage Financing (provided to research, assess and develop an initial concept)

• Start Up Financing (for product development and initial marketing)

• Expansion stage Financing (for growth and expansion of a company which is breaking even or trading profitably)

• Replacement Capital Financing (for Purchase of shares from another investor or to reduce gearing via the refinancing of debt)

• Buyout financing (investing in more mature companies with established business plans to finance expansions, consolidations, turnarounds and sales, or spinouts of divisions

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Steps / Process


• Provoke equity investor’s interest: There are hundreds of small firms interested in raising finance from private equity investors, and relatively few venture capitalists and private equity investors. Given this imbalance, the first step that a private firm wanting to raise private equity has to take is to get private equity investors interested in investing in it.

• Valuation and Return Assessment: Once private equity investors become interested in investing in a firm, the value of the private firm has to be assessed by looking at both its current and expected prospects. Discounted cash flow models to value firms and various other methods

• Structuring the Deal: In structuring the deal to bring private equity into the firm, the private equity investor and the firm have to negotiate two factors. Return on capital and dilution of equity stake

• Post-deal Management: Once the private equity investment has been made in a firm, the private equity investor will often take an active role in the management of the firm.

• Exit: There are three ways -The first and usually the most lucrative alternative is an initial public offering made by the private firm. The second is to sell the private business to another firm and the third alternative is to sale the equity to the promoter

Early Stage Funding Options

cash flow Friends family Bank Angel VC Strategic

investors

Low Low Med Low Med Low Availability

Low Hi Med Med Hi Med Cost

Low Low Med Low Hi Med Quantity

Med Low Med/Hi Low Hi Med Maturity

nonexistent

Not enough

to fund growth ,

Need

maturity to

produce it

•Hard to

manage

•Gathered

piecemeal

•No benefit

beyond $

•Bad investor

profile

•Typically

supplemental

•Requires

maturity

•Carries capital

costs

•Stricter terms

•Vary in

sophistication

•Can be high

maintenance

•Gathered

piecemeal

•Not always in

the market

High growth,

return,

ownership

expectations

•Lose some

control

•High maturity

•Less

knowledgeable

investor

•Slow

investment

process

•Informal

community,

activity

•Can limit

strategy

Risk


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Process : Private Equity Investors


This section will look at how a typical PE investment process works.

Signing a Non-Disclosure Agreement (NDA)

Initial due diligence & Management Presentation

Deal Alert (first review with Investment Committee)

Non-Binding Letter of Intent (LOI) or First Round Bid

Further due diligence with management

Building an Internal Operating Model

Preliminary Investment Memorandum

Final Due Diligence and process up to submit a binding bid

Update and Final Investment Committee Approval

Final Binding Bid and Signing

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Term Sheet Pressure Points


• Valuation

• Board Composition

• Exit

• Key Rights and Preferences

• Structure and Performance Hurdles

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Base Case Time Line


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Chart Note - $ is considered than rupees in the chart as global currency


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Indian Start-up Funding & Investment Chart November 2015(source: http://trak.in/india-startup )


Date Name Industry location Investors Investment Amount USD

02-11-2015 Twigly Online Food Ordering & Delivery platform Gurgaon Amit Gupta, Sahil Barua,

Mukul Singhal, Tracxn

Labs

Seed Funding 2,00,000

02-11-2015 CityFlo Bus Aggregation and rental mobile app Mumbai IDG Ventures Seed Funding 7,50,000

03-11-2015 Findyahan hyperlocal online Services platform Noida Times Group Brand

Capital

Private Equity N/A

03-11-2015 Sabse WiFi – first Cloud communication platform Mumbai Ratan Tata Private Equity N/A

03-11-2015 Pokkt Alternate Mobile Monetization platform Mumbai Segnel Venture, Shinji

Kimura, Sundar Chanrai,

etc..

Private Equity 50,00,000

03-11-2015 boibanit Online Food Ordering Marketplace Vadodara Varun Ahuja, Anubhav

Verma

Seed Funding 1,50,000

03-11-2015 Stuffed Quick Service Restaurant & Online Delivery Mumbai Riqueza Capital Seed Funding 3,85,000

03-11-2015 LoanBaba Online Loans Marketplace Mumbai N/A Seed Funding 3,20,000

03-11-2015 Deyor Rooms Budget Hotels Aggregator New Delhi Dheeraj Jain & Others Seed Funding 5,00,000

03-11-2015 Bidgely Efficient Energy Management platform USA/India Constellation Technology

Ventures (

Private Equity 166,00,000

04-11-2015 Shirsa Labs Digital Intelligent learning platform Mumbai ah! Ventures Seed Funding 2,50,000

04-11-2015 Paytunes Voice Call incentivization mobile app New Delhi CIO Angel Network Seed Funding N/A

04-11-2015 YourDOST Online Counselling and psychological support

platform

Gwalior Phanindra Sama, Seed Funding 4,00,000

Let us come to reality :How long is the start-up bubble in India going to last?

At the rate it's going, is it going to burst?

Reason

• high valuations,

• too much money- heavy inflow of cheap money from developed nations, will result in the excessive cash-burn.

• performance and return on investment is missing

• too many start-ups doing the same thing,

• weak business models

• Team and professional are missing

Here's a possible end game scenario:

2015 :

Industry saturation & consolidation underway

With changes in the Indian laws today and future , regulatory will play keys for success and failure

Let us see the service tax regime is increased by .50 paisa , this my have adverse effects on the financials

2016 :

Buy Outs

Financing structuring deal debt +equity and structure instruments

2017 :

Smaller players will eventually run out of cash and shut operations

Performing companies will get the next round of funding

May be stage come out with lot of litigations - between the promoters and the PE funds - non disclosure , governance

and so on......


Why the Process Often Fails


An infrequent business exercise.

Often a first time undertaking.

Objectives are frequently unclear.

Lack of skills, knowledge, preparation.

The distraction of running a business.

Initiated by panic.

Failure to recognize the obvious: cash runs the business.

Not knowing your audience: investors.

Dangers of Proceeding Unprepared


$ No second chances with an investor.$ Word gets around.$ Longer timelines.$ What you don’t do now, you’ll do later.$ Failure of the funding effort.

Summary


#Undertaking an Initial appraisal of Management’s financing proposition

# Preparation of Business Plan

# Preparing financial model.

# Planning the capital/ funding structure

# Identifying the PE /Angel Investors

# Review and appraisal of the terms of deal & Negotiation on terms of deal

# Regulatory Compliance and Governance and closing deal

# Project management of transaction

If any further information required or transaction to be executed .

Please revert at

CS Sanjay H. Indulkar

Mobile 9867161367 email: [email protected]

linkedin-connect : in.linkedin.com/pub/sanjay-indulkar/1a/865/811

Download - Private Equity

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