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TiE Institute - Termsheet
 

TiE Institute - Termsheet

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    TiE Institute - Termsheet TiE Institute - Termsheet Presentation Transcript

    • <seedfund> Demystifying Term Sheets Shailesh Vickram Singh SEEDfund svs@seedfund.in QUARTERLY REPORT, APR-JUN 2007
    • <seedfund> Type  of Alternative Investment Class •  Seed  Fund   •  Aim   •  Venture  Capital     –   Superior  return  in  5  to  7  years   •  Buyout  /  Leveraged   –  Asymmetrical  Informa;on   Buyout     –  EBITDA  expansion   –   Financial  Engineering   •  Growth  Capital   •  Special  Situa;on   Funds   – Stressed  Asset   – Real  Estate  Fund   – Infrastructure   Funds   – Secondary  Funds  
    • <seedfund> Investment Deal Structures •  Types  Of  deals   –  Startups   –  Fresh  Equity  –  Growth  Capital   –  Buyouts     –  Leveraged  Buyouts   •  Issues   –  Performance  clause   –  Dilu;on   –  Exit  Scenario   –  Taxa;on  Issues  
    • <seedfund> Deal Structure •  Startup  Structure     –  Startup  aims  to  raise  ~    INR  1  Crore   –  Proposal   •  VC  contribu;on  ~  INR  1  Crore  for  40%  stake   •  Entrepreneur  ~  60%  of  share  for  idea,  execu;on  and   delivery  
    • <seedfund> Deal  Structure •  Risk  faced  by  VC/  Investor  if  agreed  to  this  this   structure   –  Split  of  proceed  if  venture  fails   –  Split  of  proceeds  if  venture  succeeds   –  Investor  IRR   –  Good  faith  investment  from  entrepreneur  :  Skin  in   the  game   –  Clause  for  staying  in  the  venture  :  ves;ng  
    • <seedfund> Risk Management Liquidity  Preference  /  Debt   Split  of  proceed  if  venture  fails     Split  of  proceeds  if  venture  succeeds   IRR     Capital  Contribu;on     •  Good  faith  investment  from  entrepreneur  :  Skin  in  the  game     Share  Ves;ng     •  Clause  for  staying  in  the  venture       Tranche  
    • <seedfund> Proposed structure from VC player Debt Investor Entrepreneur Debt INR 50,00,000 $0 Preferred Stock INR 46,00,000 Common stock $0 40 shares @ INR 10000 per INR 4,00,000 - share (40% stake with Investor) 60 shares @ INR 10,000 per - INR 6,00,000 shares (60% with Entrepreneur) 1,00,00,000/- INR 6,00,000/-
    • <seedfund> •  Protection Rights ROFR  :  Right  of  first  refusal   •  An;  Dilu;on  right   •  Significant  non  performance  rights   •  Promoter  lock  in   •  Tag  along  rights  :  protec;on  of  minority  share  holder   •  Drag  along  rights  :     –  Drag  Along  :  majority  share  holder  Scenario  (Protec;on  to   Majority)   –  Drag  along  :  minority  share  Scenario    (Protec;on  to  Minority)
    • <seedfund> •  Don’t raise VC / PE Money Don’t  like  external  players  in  BoD  /  Strategy   •  Do  not  plan  and  exit  in  4-­‐5  years   •  Comfortable  with  Old  accoun;ng  prac;ces   •  Prefer  Cash  as  a  value  creator  than  stock   •  Be^er  Op;on   –  Bank  loan   –  Family  assets  /  Mortgage   –  Non  formal  markets  
    • <seedfund> Questions?