The document summarizes the keynote presentation by David Fisher at the Family Office Summit on direct investment and risk reduction. The presentation covered 10 commandments of risk reduction when making private equity deals, including doing thorough due diligence on all parties involved, having proper legal protections and security in place, ensuring timely and accurate financial information, and planning for a viable exit strategy. It emphasized balancing risk and reward, understanding industry dynamics, and potentially finding a valuable co-investor to partner with on deals. The overall message was that investors can increase returns and reduce risks by carefully following these principles when evaluating and structuring private investments.

1. FAMILY OFFICE SUMMIT
MAY 8, 2015
CHICAGO, ILLINOIS
DIRECT INVESTMENT
RISK REDUCTION

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THE FIRST RULE OF MAKING MONEY IS
DON’T LOSE ANY!!!
Warren Buffett

3. 3
The Ten Commandments
of
Risk Reduction
Wilson Conferences Presents

4. Starring
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DAVID FISHER
dfisher@bentleycap.com
www.linkedin.com/pub/david-andrew-fisher/5/516/56
 HARVARD MBA, VANDERBILT JD, DAVIDSON BA
 MORE THAN 30 YEARS IN PRIVATE EQUITY, VENTURE CAPITAL,
INVESTMENT BANKING & BUSINESS LAW
 MANY YEARS IN EMERGING MARKETS PRIVATE EQUITY
 SERVES ON SEVERAL BOARDS & INVESTMENT COMMITTEES
 OWNER OF BENTLEY CAPITAL LTD, A FAMILY OFFICE

5. In the Beginning, God created…
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 AS INVESTORS, WE GIVE UP PURCHASING POWER TODAY IN
EXCHANGE FOR THE EXPECTATION OF GETTING INCREASED
PURCHASING POWER IN THE FUTURE.
 WE DO THIS BY MAKING PROMISING TRANSACTIONS AFTER
CONSIDERING:
 YOUR TIME HORIZONS.
 ALL REWARDS, LIKE FINANCIAL, STRATEGIC, ETC.
 ALL RISKS, LIKE BUSINESS, MACRO, MICRO, LIQUIDITY,
EXIT, FX, INFLATION, ETC.
 NET OF ALL COSTS, LIKE FEES, EXPENSES, TAXES, ETC.
 INVESTORS WHO CAN REDUCE THEIR RISKS & COSTS, WHILE
MAINTAINING OR INCREASING THEIR REWARDS, ARE DOING
AN EXCELLENT JOB.
the Deal

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For the Righteous, God also threw in a few
Deal Commandments and Tips…

7. Do unto Others before They Do unto You
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 UNDERSTAND THE PE DEAL ‘MATING DANCE’.
 PRIORITIZE YOUR PROJECTS.
 FIGURE THE DEAL COMPLETION RISK & OPPORTUNITY COST.
 PLAN & MANAGE THE PROJECT.
 HAVE A DEAL BUDGET & STAFF.
 HAVE A NEGOTIATING STRATEGY.
 AIM TO TAKE DEBT RISKS FOR EQUITY REWARDS.
 DO YOUR HOMEWORK.
 ENGAGE THE RIGHT EXPERTS ON THE RIGHT TERMS.
 KNOW YOUR DEAL COMPETITION; MAYBE CO-OPT THEM?
 FIND A VALUE-ADDED CO-INVESTOR?
 HATE AUCTIONS - LOVE AUCTIONS.

8. Take Care about your Bedfellows
as some may Surprise you in your Sleep
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 KNOW WHO YOUR FELLOW SHAREHOLDERS WILL BE – WHO
ARE THE ULTIMATE BENEFICIAL OWNERS?
 DO A BACKGROUND CHECK ON ALL OWNERS & KEY MANAGERS.
 MAKE SURE THEY CANNOT SELL THEIR SHARES DIRECTLY OR
INDIRECTLY WHILE YOU’RE AN INVESTOR.
 ALL SHAREHOLDERS SHOULD BE UNDER NON-DISCLOSURE,
NON-COMPETE, NON-POACHING + NO SHARE SALES TO THE
SUPPLIERS, CUSTOMERS OR COMPETITORS.
 OFTEN NEPOTISM, CONFLICTS-OF-INTERESTS & SELF-DEALING
ARE THE NORM.
 MAKE SURE TO HAVE VIABLE DEADLOCK RESOLUTION
PROVISIONS.

9. Thou shall not Proceed without a Term Sheet
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 IT CAPTURES THE BASIC COMMERCIAL UNDERSTANDING OF THE
OWNERS, INVESTEE COMPANY AND INVESTORS. IT IS SUBJECT
TO MANY CONDITIONS PRIOR TO COMPLETING THE DEAL.
 IT FOCUSES EVERYONE ON ALL MAJOR DEAL POINTS, AFTER A
LIMITED REVIEW OF THE BUSINESS, BUT BEFORE DETAILED DUE
DILIGENCE $$$ ON THE INVESTEE.
 BINDING PARTS INCLUDE PARTIES, EXCLUSIVITY, COSTS, BASIC
PREMISES, CONFIDENTIALITY, ABILITY, DISPUTES & PROCESS.
 NON-BINDING PARTS INCLUDE KEY DEAL TERMS: VALUATION,
SECURITIES, GOVERNANCE, INFORMATION, EXIT, ETC.
 BY COVERING ALL KEY AREAS, IT SAVES MUCH TIME, MONEY
AND MISUNDERSTANDING.

10. The Meek may inherit the Earth,
but the Strong & Smart get the Gold
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 GOOD NEGOTIATIONS ARE BASED ON GOOD HOME WORK,
COMMUNICATION SKILLS & CREDIBILITY.
 UNDERSTAND EACH SIDE’S BATNA. WORK TO IMPROVE & CONVEY
YOUR BATNA.
 BE PREPARED TO WALK AWAY.
 UNDERSTAND KEY PLAYERS’ AGENDA & PERSONALITY.
 LISTEN & LEARN ABOUT THE OWNER’S WANTS & NEEDS.
 SELL YOUR VALUE-ADDED CAPABILITIES – MORE $ FOR ALL.
 MAKE SURE EACH SIDE ‘WINS’ & THE OWNER DOESN’T LOSE FACE
WITH HIS PEERS.
 MUTUAL PROBLEM SOLVING & FLEXIBILITY BUILD TRUST.
 A SHARP SHORT-TERM GAIN WON’T SURVIVE IN A LONG-TERM DEAL.

11. Trust shows Faith,
but Security shows Wisdom
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 YOU SHOULD TRUST THOSE WITH WHOM YOU DEAL, BUT MAN
CANNOT SURVIVE ON TRUST ALONE.
 MAKE SURE YOU GET WRITTEN REPS, COVENANTS & INDEMNITIES
ON ALL IMPORTANT MATTERS.
 THESE SHOULD COME FROM THE OWNER PERSONALLY OR FROM A
SOUND SOURCE – NOT JUST FROM HIS HOLDCO.
 HAVE THE OWNER PLEDGE HIS SHARES & OTHER ASSETS TO SECURE
PERFORMANCE.
 IF THE INVESTEE HAS CLEAR ASSETS, TAKE A SECURITY INTEREST IN
THEM, OR BUY THEM AND LEASE BACK.
 THE MORE SECURITY YOU GET (AND THUS LESS RISK), THE MORE
YOU SHOULD PAY.
 ADJUST THE VALUATION BASED ON ACTUAL AUDITED RESULTS.

12. Part with your Gold
as a Mother parts with her only Child
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 STRUCTURE SO THAT CLOSING & FUNDING ARE SUBJECT TO
REASONABLE CONDITIONS PRECEDENT.
 ALL NECESSARY PERMISSIONS MUST BE OBTAINED.
 USE OF FUNDS MUST BE CLEARLY UNDERSTOOD.
 FUND IN TRANCHES WHEN MAJOR MILESTONES ARE MET.
 USE HOLDBACKS IN A BUYOUT DEAL.
 KEY PERSONNEL HAVE SIGNED STANDARD CONTRACTS.
 THE APPROVED BUSINESS PLAN & BUDGET ARE BEING FOLLOWED.
 GET COMPLIANCE CERTIFICATES FOR EACH FUNDING.
 HAVE A VETO OVER COMPANY DIVIDENDS & DISTRIBUTIONS.
 BE CAREFUL ABOUT CASHING OUT OTHER SHAREHOLDERS.

13. Study the Devine Writings of St Michael
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 SINCE IT’S HARD TO HAVE A GOOD DEAL IN A BAD INDUSTRY, DO
THE PORTER ANALYSIS EARLY.
 SUPPLIERS – ARE YOU TOO DEPENDENT ON A FEW KEY SUPPLIERS?
 CUSTOMERS – DO YOU HAVE A HEALTHY & DIVERSE CUSTOMER
BASE? ARE THEY GROWING & PAYING?
 COMPETITORS – ARE THEY RATIONAL OR APT TO ENGAGE IN
DESTRUCTIVE COMPETITION? A DEEP-POCKETS COMPETITOR CAN
JUST WAIT FOR YOUR DEMISE.
 OUTSIDE THREATS – IS THE BUSINESS SUBJECT TO DISRUPTIVE
INNOVATION OR PROTECTED BY TARIFFS & QUOTAS?
 USE RECOGNIZED INDUSTRY EXPERTS, MAYBE THEY CAN CONTINUE
AS BOARD MEMBERS / ADVISORS?
Porter

14. Information & Control are Next to Godliness
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 YOU’RE ‘FLYING BLIND’ AS AN INVESTOR UNLESS YOU HAVE THESE
FUNDAMENTAL RIGHTS.
 TIMELY, RELEVANT & ACCURATE INFO ABOUT THE CONDITION &
RESULTS OF THE BUSINESS USING ACCEPTED STANDARDS LIKE GAAP
OR IFRS.
 ANNUAL AUDITS BY PRE-AGREED REPUTABLE AUDITORS.
 OFTEN INVESTORS WILL HAVE THE RIGHT TO APPOINT / REMOVE
THE COMPANY CFO.
 HOLD A “MINORITY CONTROLLING STAKE”.
 RESERVED MATTERS (AKA MINORITY PROTECTIONS) ARE THOSE
IMPORTANT ITEMS THAT CANNOT BE CHANGED WITHOUT THE PRIOR
CONSENT OF THE INVESTORS. PRE-AGREE 2-YR ROLLING BUSINESS
PLAN & BUDGET.
 YOU MUST HAVE THE RIGHT TO CHANGE KEY MGMT & COMPANY
STRATEGY UPON MAJOR UNDER-PERFORMANCE.

15. A fond Farewell beats a Fight to the Finish
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 YOU MUST HAVE AN EXIT AS YOU ARE NOT ETERNAL CAPITAL –
YOU ARE INFERNAL CAPITAL!
 STRUCTURE AN ENFORCEABLE EXIT PROCESS & TIMING UPFRONT.
 IT MUST BE FEASIBLE & FAIR UNDER THE CIRCUMSTANCES – NOT
ALL COMPANIES CAN GO PUBLIC.
 BEING LISTED IS NOT NECESSARILY AN EXIT IF YOU ARE LOCKED
UP OR THE SHARES ARE ILLIQUID.
 EXIT BONUSES ARE GOOD INCENTIVES TO MGMT & OTHERS.
 ALLOWING RIGHTS OF LAST REFUSAL CAN CHILL YOUR SALE.
 MOST EXITS ARE VIA TRADE SALES – QUICKER, SIMPLER,
CHEAPER.
 WHAT’S YOUR FAIL-SAFE EXIT? OFTEN PFD SHARE REDEMPTION,
COMMON PUT OR LOAN REPAYMENT. UPSIDE COMES FROM
CONVERSION, WARRANTS, ETC.

16. The Court of Solomon was Supreme,
but Arbitration is often Better
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 IN MANY DEVELOPING COUNTRIES, THE LEGAL SYSTEM JUST ISN’T
ADEQUATE FOR COMMERCIAL DISPUTES DUE TO LACK OF EXPERTISE,
CORRUPTION, BIAS & SLOW PACE.
 MOST OF THE TIME ARBITRATION OF DISPUTES IS CONFIDENTIAL,
SIMPLER, FASTER & CHEAPER THAN NATIONAL COURTS.
 THUS, BINDING INTERNATIONAL COMMERCIAL ARBITRATION OF
DISPUTES PROVIDES A BETTER OPTION FOR MANY INVESTORS.
 CHOOSE A RESPECTED GOVERNING BODY, LIKE LCIA OR ICC, &
NEUTRAL VENUE, LIKE LONDON OR ZURICH.
 THE RESULTING ARBITRAL AWARDS ARE ENFORCEABLE IN ALMOST
ALL COUNTRIES VIA THE NEW YORK CONVENTION.
 EXPERT DETERMINATION IS ALSO A GOOD METHOD FOR TECHNICAL
DISPUTES & DEADLOCKS.

17. If you travel to the Land of Sodom &
Gomorrah, Take a Good Lawyer with You
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 AN EXOTIC LOCALE, OFTEN MEANS MORE RISK & MAYBE MORE
REWARD.
 THERE MAY BE LESS COMPETITION FOR INVESTMENTS THERE & A
GOOD INVESTOR CAN ADD MORE VALUE IN AN INEFFICIENT MARKET.
 HOWEVER, THE THRESHOLD INVESTMENT DECISION ABOUT A
COUNTRY IS – RULE OF LAW VS. LAW OF RULER?
 IF YOU DON’T HAVE RULE OF LAW, THINK TWICE AS WE GIVE OUR
INVESTEES MILLIONS & THEY GIVE US STACKS OF CONTRACTS IN
RETURN.
 USE AN OFFSHORE 100% HOLDCO IN A PLACE WITH FAMILIAR LAW.
 USE FAVORABLE TAX & INVESTOR-PROTECTION TREATIES.
 MAKE SURE THEY USE AUDITED IFRS & YOU APPOINT THE CFO.
 MAYBE FIND A LOCAL ‘ROOF’ WITH STRONG CONNECTIONS?

18. If You travel to the Land of Milk & Honey,
take Me with You!
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 FINDING A GOOD CO-INVESTOR OFTEN REDUCES RISKS &
INCREASES REWARDS.
 IT’S KEY THAT THEY CLEARLY ADD-VALUE IN SOME OF THE MAJOR
CATEGORIES LIKE MARKET, TECHNOLOGY, FINANCING, EXIT…
 LOOK FOR ONE THAT HAS SIMILAR STYLE, GOALS, TIME HORIZON,
PRINCIPLES, PERSONALITIES & VALUES.
 WIN TOGETHER OR LOSE TOGETHER.
 THEY SHOULD INVEST RIGHT ALONGSIDE YOU ON THE SAME TERMS
& CONDITIONS.
 A COMPREHENSIVE SHAREHOLDERS AGREEMENT SHOULD SPELL OUT
HOW ALL PARTIES WILL JOINTLY MANAGE, MONITOR, NURTURE &
EXIT THE DEAL.

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GOOD LUCK
&
GOOD DEALS
Thank you!
David Fisher
Bentley Capital Ltd