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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 1 Private & Confidential Report is only for the information purpose Private Equity Double edged sword

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  • 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

  • 3

    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

  • 5

    Steps / Process

    Private & Confidential Report is only for the information purpose

    Provoke equity investors 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

    Private & Confidential Report is only for the information purpose 6

  • 7

    Process : Private Equity Investors

    Private & Confidential Report is only for the information purpose

    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

  • 8

    Term Sheet Pressure Points

    Private & Confidential Report is only for the information purpose

    Valuation

    Board Composition

    Exit

    Key Rights and Preferences

    Structure and Performance Hurdles

  • 9

    Base Case Time Line

    Private & Confidential Report is only for the information purpose

  • 10

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

    Private & Confidential Report is only for the information purpose

  • 11

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

    Private & Confidential Report is only for the information purpose

    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, AnubhavVerma

    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......

    Private & Confidential Report is only for the information purpose 12

  • Why the Process Often Fails

    Private & Confidential Report is only for the information purpose 13

    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

    Private & Confidential Report is only for the information purpose 14

    $ No second chances with an investor.$ Word gets around.$ Longer timelines.$ What you dont do now, youll do later.$ Failure of the funding effort.

  • Summary

    Private & Confidential Report is only for the information purpose 15

    #Undertaking an Initial appraisal of Managements 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