By Rajesh Sharma, Times Private Treaties @ Franchise India Private Equity Conclave 2010

1. Conventional v/s Modern Instruments of Business Funding
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2. Business growth today is all about collaboration ……..
Collaborate in Capital Markets to grow exponentially !
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3. Private Equity / Venture Capital = Funding against equity
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4. ‘Past performance’ v/s ‘Future promise’
Debt v/s Equity
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5. Future promise v/s Past performance - Equity v/s Debt
Equity – sharing Debt – a loan from a
financial interest in the bank / financing
business institution / individual
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6. Equity – the most expensive form of funding?
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7. 7
businesses in the modern Economy
Building
Access to
Access to
Capital Markets
Capital Markets
Real Business
Real Business
3/16/2010

8. Business stages & sources of funding
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9. Business stages & Sources of funding
Seed Stage Early Stage Growth Stage Expansion Stage
Consolidation
Growth challenges Market Validation Operational challenges
Capex Customer Acquisition Expansion / Scale-up
R&D on business idea No / Low Revenues
Cash burn
IPO
Stage of
Mezzanine Capital
Business
Bank Loans
Debt markets
Venture Capital Private Equity
Family & Friends
Angels
Incubators
Time / Revenue
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10. Angel Investors
• Typically HNIs / Entrepreneurs
• Invest in very early stage – R&D on business ideas, prototype
development, market research, pre-revenue
• “Angel Funds” – coming together of angel investors e.g Mumbai Angels.
Band of Angels
• Typically look at :
• Domain knowledge
• Entrepreneurship qualities
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11. Venture Financing
• Invest in start- up stage companies – to support a business plan, pre-
break-even stage
• Started as a concept at Silicon Valley
• Active VCs in India – IDG, Cannan Partners, Nexus Capital
• Typically look at :
• Management team
• IPR / Business idea
• Scalable market for product / services
• Consumer traction / revenues
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12. Private Equity
• Typically later-stage investments
• Internationally – majorly represented by Buyouts
• In India – typically growth stage investments and PIPEs ( Private
Investments in Public Equity )
• Some active PE funds in India – ICICI Ventures, Warburg
Pincus, Barings, Carlyle, IDFC etc.
• Typically look at :
• Operating leverage – opportunity to further scale-up business
• Financial leverage – improving capital structure
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13. “Venture Debt “ – an oxymoron?
• Typically coupon-bearing debentures / preference shares
convertible into equity, FCCBs
• Might be secured – similar to bank debt
• Advantage – limits dilution
• Interest payments – periodic / bullet
• Some structures may cause cash flow issues if not converted
into equity as seen recently ( e.g Wockhardt)
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14. IPOs
• Raising capital from public equity markets – broad-basing the
investor base
• SEBI (ICDR) Regulations specify eligibility criteria for IPOs ( such
as track record of dividends, tangible assets, net-worth) – non-
complying entities have to follow Book-Building route
• Specified allotment under Book-building IPOs:
– QIBs – 50%
– Non-institutional investors - 15%
– Retail investors – 35%
• Long –drawn & expensive process
• Listing involves significant regulatory compliance, pre & post
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15. What to consider when selecting source of funding?
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16. Selecting the Source of Funding: Parameters
• Growth Prospects and Profit Margins of the Business
• Evaluation: How much money does my business plan require?
• Capital Structure of the Company
• Evaluation: Can I avoid Distress Costs, especially in bad economic
scenario?
• Cost of the Type of Finance being considered
• Evaluation: Today, is Debt significantly cheaper than Equity?
• Visualized Dilution of Stake
• Evaluation: How much Stake am I comfortable to part with?
• Need for the Deal/ Funding / Expertise
• Evaluation: How much will the Deal / Funding/ Expertise help me?
• Sometimes, Expertise can take you leaps ahead (Eg. Private Treaty)
• The Power of NOW
• Evaluation: What are the reasons that necessitate taking (a type of)
funding Today?
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17. Co-creation of value
Late Stage Value
Handholding through value Unlocking
unlocking – IPO / Strategic
M&A
Growth Stage
Strategic inputs Value
Creation
Corporate Governance
Early Stage
MIS
Contribution Team
of a PE / VC
partner Relationships / Network
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18. The Financing Decision
• Pecking Order Theory Equity
• Companies should choose to raise fund in the order:
Debt
Internal Funds
• Trade-Off Theory
• There is an advantage to financing with debt (namely, the tax benefit of debts) and
that there is a cost of financing with debt (the bankruptcy costs of debt)
• Market Timing Hypothesis
• First order determinant of a corporation's capital structure, that is, the fractions of
debt and equity in their liabilities, is the relative mis-pricing of these instruments at
the time the firm needs to finance investment
These form the theoretical basis.
In reality, the practice is mixed, but is impacted by arguments of the theories.
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19. Why Dilute?
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20. Why dilute – the Golden Rules
Limitations on internal accruals / FFFs
Debt funding expensive / not possible
Equity participation offers strategic value beyond cash
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21. A perspective on M&A
• Organic v/s Inorganic growth
• Exit & Liquidity
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22. 22
Access to
Access to
businesses in the modern Economy
Branding Markets
Branding Markets
Building
Access to
Access to
Capital Markets
Capital Markets
Real Business
Real Business
3/16/2010

23. “Funding Brand Building / Visibility”
Over 5 years of existence
Over 250 investments
Largest PE fund in terms of deal numbers
3/16/2010 23

24. 3/16/2010 24

25. “Physical” business
v/s
“Mind” business
&
“Value creation”
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26. Times Private Treaties
A portfolio of over 250 investee companies
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27. Thank You
Rajesh Sharma
AVP – Times Private Treaties
Bennett Coleman & Co.Ltd.
E-mail : rajesh.sharma3@timesgroup.com 27