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: [email protected]
Top Related