Means of Private Funding

By Pavan Kumar Vijay

SPECTRUM OF FUNDING OPTIONS!!!

!!!

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PreferentialAllotment

PreferentialAllotment

Private Equity

Private Equity

VentureCapitalVentureCapital

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BENEFITS

Improvement and development of business and strategies.

Enhancement of Brand Image of the Company.

KEY CONCERNS

Close monitoring of Funds

Board Nomination

PRE REQUISITES FOR ATTRACTING PRIVATE FUNDING

Good Management Team,

Well defined Business Model,

Competitive Positioning,

Strong Cash Flows,

Attractive Entry Price

Exit Opportunity to Investor,

High Returns to Investors

Sound Past Performance

Business Growth Strategies

PREFERENTIAL ALLOTMENTPREFERENTIAL ALLOTMENT

Simple way to raise capital of the Company

Economical way to raise capital

No need to appoint Merchant Banker

PREFERENTIAL ALLOTMENT

(except in case of allotment to QIBs )

Equity Shares

Any other security Convertible into Equity Shares.Like: Warrants, Fully Convertible Debentures, Partly Convertible Debentures, Convertible Preference Shares.

SECURITIES THAT CAN BE ISSUED ON PREFERENTIAL BASIS:

SECURITIES THAT CAN BE ISSUED ON PREFERENTIAL BASIS:

The Companies Act, 1956

SEBI (Disclosure and Investor Protection) Guidelines, 2000 (Chapter – XIII & XIIIA)

Unlisted Public Companies (Preferential Allotment) Rules, 2003

SEBI (SAST) Regulations, 1997

LAWS GOVERNING PREFERENTIAL ALLOTMENT

Listing Agreement

PROPOSED ALLOTTEES

Allotment to QIBs (not in Promoter Group)

by companies listed on NSE / BSE.

OTHERS

Chapter – XIIIA of SEBI (DIP) Guidelines

Chapter – XIII of SEBI (DIP) Guidelines

Time Line- Preferential Allotment

Relevant Date

30 days

General Meeting(10.05.2006)

Filing of application

of in-principal

approval

Despatch of

Individual Notices

25 days

15 days (12 months in case of QIBs)

Board Meeting

Allotment of Shares

Shareholders’ Resolution must be

implemented within 15 days (12 months in case

of QIBs) except in case of pending regulatory

approvals

Pricing Schedule

General Meeting10.05.2006

Relevant Date

10.04.2006

30 days2 weeks

6 months

(26.03.06- 09.04.06)

(10.10.05- 09.04.06)

Lock in RequirementsLock in Requirements

QIBs Others

ExistingHolding

Preferential Allotment

ExistingHolding

Preferential Allotment

No Lock in For One Year, except in case

of Trading through Stock Exchange

For Six Months

PROMOTERS – 20% of Total Capital - for 3 YearsRemaining – for one Year

OTHERS – For One Year

Currency of Security Convertible into Equity

Shares

QIBs OTHERS

FCDs/ PCDs/ any other convertible Security –60

Months from the date of allotment

Warrants convertible into Equity Shares –

can’t be issued to QIBs

FCDs/ PCDs/ any other convertible Security –No

time prescribed for conversion

Warrants convertible into Equity Shares - 18 months from the date of allotment

Preferential Allotments: 2000-01 to 2006-07

YEAR No. of Issues

Amount (Rs. Crore)

2000 - 2001

335 12330

2001 – 2002

243 4640

2003 – 2003

313 1912

2004 – 2005

1180 1745

2005 – 2006

4428 6966

2006 – 2007

8742 6974

Source: www.primedatabase.com

1. HESTER PHARMACEUTICALS LTD.

2. ZYDEN GENTEC LTD.

3. SSI LTD.

4. SICAL LOGISTICS LTD.

5. GEMINI COMMUNICATIONS LTD.

6. VISTA PHARMACEUTICALS LTD.

7. CLUTCH AUTO LTD.

8. SUJANA UNIVERSAL INDUSTRIES LTD.

9. ANG AUTO LTD.

Source: BSE Website

RECENT PREFERENTIAL ALLOTMENTSRECENT PREFERENTIAL ALLOTMENTS

VENTURE CAPITALVENTURE CAPITAL

VENTURE CAPITAL

risk capital necessary to Kick-start

a business idea into a commercial reality

money provided by professionals

who invest in young, rapidly growing companies

In accordance with SEBI (Venture Capital Funds) Regulations, 1996, VCF means:

In accordance with SEBI (Venture Capital Funds) Regulations, 1996, VCF means:

fund established in the

form of a trust or a company

fund established in the

form of a trust or a company

Registered under these Regulations

Registered under these Regulations

has a dedicated pool of capital

raised in a manner specified in the regulations

invests in accordance with the regulations

VENTURE CAPITAL FUNDVENTURE CAPITAL FUND

Venture Capital Investors

High net-worth individuals with appetite for high risk / reward paradigm

Institutions diversifying investment portfolios – Insurance companies, pension funds, banks, etc.

Funds of funds

Governments acting as catalysts

Venture Capital: A BoonVenture Capital: A Boon

Resource for supporting innovation, knowledge based ideas,

technology and

capital intensive enterprises

Critical financial Support for idea based enterprises

not available from banks and institutions

High risk / high return finance combined with hand holding

Venture Capital Investment Trends in India

20 80

250

500

1,160

937

774900

590

0

200

400

600

800

1,000

1,200

1,400

96 97 98 99 '00 '01 '02 '03 '04

Source: IVCA/AVCJ

IT and IT-enabled servicesSoftware Products (Mainly Enterprise-focused)Wireless/Telecom/SemiconductorBankingPSU DisinvestmentMedia/EntertainmentBio Technology/Bio Informatics PharmaceuticalsContract ManufacturingRetail

TARGET INVESTMENT VISTAS FOR VCFs

TARGET INVESTMENT VISTAS FOR VCFs

Rural, Retail & FinanceWi-FI/ WirelessKPOClinical ResearchHealth TourismFood ProcessingContract R&DChip DesignMultiplexesGamingSecurity SystemsWineAlternative EnergyR&D VenturesWeb Initiatives

EXISTING UPCOMING

NEGATIVE LIST FOR VENTURE CAPITAL FUND:

NEGATIVE LIST FOR VENTURE CAPITAL FUND:

Non Banking Financial Services (excluding NBFCs registered with RBI and categorized as Equipment Leasing or Hire Purchase Companies)

Gold Financing (excluding companies engaged in Gold Financing for jewellery)

Activities not permitted under Industrial Policy of Government of India.

Any other activity which may be specified by Board in consultation with Government of India from time to time.

PRIVATE EQUITYPRIVATE EQUITY

Private Equity Investment

Private Equity Investment

High Growth perspectivesHigh Growth perspectives

Focus of Private Equity Investors:

Global CompetencyGlobal Competency

Competitive EdgeCompetitive Edge

PRIVATE EQUITY PROCESSTotal time taken for PE deal is 10 to 14 weeks

Issuance of Mandate

Preparation of Information Memorandum

Investors’ Marketing and Presentation

Meetings with Investors

Preliminary Term Sheet / Letter of Intent

Negotiations and Finalisation of Term Sheet / Letter of Intent

Due Diligence by Investor

Sign Up of Share Purchase Agreement

2-3 weeks2-3 weeks

2-4 weeks2-4 weeks

4-6 weeks4-6 weeks

Sectors for Private Equity Investment…

Real Estate

Infrastructure

Financial services

Logistics

FMCG

Specialty Chemicals

Retailing

Life Science / Pharma

Manufacturing Engineering

IT & IT Enabled Services

Auto Ancillaries

Textiles