Mr. Sanjaya KulkarniIDEA

Negotiating and Structuring Deals

October 30 -31, 2000

VC PROCESSVC PROCESS

InitialStage

TermSheet

DueDiligence

Documentation

* Business Plans* Initial Price Indication

* Basic Conditions* Exclusivity* Projections* Detailed Business Plan* Pricing* All other terms

* Negotiation of documents

CONDITIONS TO BE NEGOTIATED...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......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...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 -APPROACH TO NEGOTIATION -SUGGESTIONS FOR ENTREPRENEURSSUGGESTIONS 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 NEGOTIATIONAPPROACHES 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

STRUCTURINGSTRUCTURING

* 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 STRUCTURINGISSUES 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

Email: ideas@ideaequity.com