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Entrepreneur's Guide: Negotiating & Structuring Deals with VCs

Learn effective negotiation tactics and deal structuring strategies when dealing with Venture Capitalists. Discover key considerations, conditions to be negotiated, approaches to negotiation, and issues in structuring deals. Gain insights on successful negotiations and maximizing value for your business in this informative guide.

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Entrepreneur's Guide: Negotiating & Structuring Deals with VCs

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

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

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

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

  5. ...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

  6. 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

  7. 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

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

  9. 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

  10. THANK YOU Email: ideas@ideaequity.com

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