Mr. Sanjaya Kulkarni IDEA Negotiating and Structuring Deals October 30 -31, 2000.

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Presentation transcript:

Mr. Sanjaya Kulkarni IDEA Negotiating and Structuring Deals October , 2000

VC PROCESS Initial Stage Term Sheet Due Diligence Documentation * Business Plans * Initial Price Indication * Basic Conditions * Exclusivity * Projections * Detailed Business Plan * Pricing * All other terms * Negotiation of documents

CONDITIONS TO BE NEGOTIATED... * Representations & Warranties * Asset Ownership * Negative Covenants - Others - Generally Statements of fact - Financial- borrowing - capital expenditure - investments/loans - diversification - anti dilution/equity increase - conflicts of interest / other businesses of sponsors - related party transactions - Physical - IPR Contd...

...CONDITIONS TO BE NEGOTIATED... * Board Representation/ Committees * Pricing - Number & Role - Who will be appointed - Approval Process - Compensation - Difficult but crucial part of the negotiation * Management - Changes - Audits - Value Addition Contd...

...CONDITIONS TO BE NEGOTIATED * Exit Provisions - Drag along/Take along rights - Issue timing and pricing - Who can trigger IPO - Put/Call options * Problem Solving- Jurisdiction - Arbitration

APPROACH TO NEGOTIATION - SUGGESTIONS FOR ENTREPRENEURS * Know the facts of the company i.e. be prepared * Know the industry * Don’t lie * Negotiate directly or control your intermediaries * Don’t take rigid stands and have an open mind * Don’t hesitate to rely on professional help * Be upfront with conditions which can be deal breakers * Work to time deadlines * Ask for written commitments from VC’s

APPROACHES TO NEGOTIATION * Negotiation is in an Indian perspective * Don’t let lawyers/intermediaries take over * Don’t negotiate to death * Be fair - Be Pricey but not Greedy * Remember - the VC has to make money

STRUCTURING * Equity * Convertible Debentures - Rate of interest - Conversion period - Basis of conversion * Convertible Preference - Rate of interest - tax implications - Conversion period - Basis of conversion * Equity with performance linked warrants

ISSUES IN STRUCTURING * Legal Structure- Investment in India, US or a third country - Investment in an holding company/operating company - Parent/subsidiary - shareholding, conflicts - Parent - branches * Effect of structure on exit options * Structuring of the fund * ESOP

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