Archive for June, 2008

28
Jun
08

I envy

people who have faith.

those without fear.

those who have faith and no fear even after failures.

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27
Jun
08

Connecting the dots

This year is my sister’s time to start college. Which means heated discussions on which college should be chosen, which branch ‘will be good for her’, which college has a ‘better brand’, etc, by my parents and relatives. Sometimes I’m asked for my opinion and sometimes my sister is also asked for hers. Its more heated because it involves choosing between the venerable IITs, BITS, IT-Bhu and NITs. My very knowledgeable relatives believe no matter what, an IIT should be choosen. After all there’s a completely different charm to studying in a ‘branded institution’ even if it is coming up in a single leased building(IIT-Hyd) or in a non-existent campuses(IIT-Jaipur, IIT-Bhubaneshwar, IIT-Punjab). IT-BHU or the NITs are not an option. And God forgive me, no BITS.

The reasoning? “When you go out of India, nobody will recognise whether you are from KIT, Junnabhai college or BITS. Only when you say IIT they will recognise.”

I being the polite types totally did everybody a favor by not asking them to ‘fuck off’. I just said “No new college. I have nothing against the IITs. I really don’t care, let my sister pick.”

“No your sister is too young. She doesn’t know anything. You should listen to your father.”

I again did not ask them to fuck off. But I think I saw my sister mouthing out those words. My father looked even more confused, here was a 30+ yr old Top 10 US MBA relative telling him to ignore his 20 yr old son, studying sciences and doing god knows what. Luckily my sister spoke up soon. She refused to study again in any college that exists in a building(IIT-Hyd, Narayana Jr. College). And said she’ll take Electrical or Mechanical in IT-BHU. And then talked about how you cannot predict success or failure by just looking at a college and ‘how you cannot connect the dots looking into the future'(Yes she had watched Steve Jobs’ Stanford commencement speech the day before). I was so glad I had shipped my computer home. And then I realized she had understood the sentence better than I had. I was so proud.

update: She’s coming to PIlani for Finance! B.Tech Mechanical at IT-BHU(or IIT-BHU rather) was dropped.

26
Jun
08

Simple guide to an investment process

The capital raising process for a company from investors was a process that was quite unclear for me and I’ve certainly acquired more knowledge about it during my internship at Intellecap. So here’s a rough outline of the process for the rest of us.

Venture capital investment 101

1. Finding investors:

Typically companies contact investment banks or consultancies to guide them through the entire deal. The role of the investment bank is to represent the ‘sell-side’. The bank will create a ‘flyer’ of sorts to pitch the company to their network of investors consisting of PE firms, VCs, other banks, etc. The difference between the investors is in the kind of value theyll bring to the company. Large organizations rasing money do not need strategic management support, while small companies do. So VCs are commonly contacted for small companies rasing their first few rounds of investment. While PE funds who just provide the capital are contacted for more mature companies.

If a few interested investors are found, then its time to

2. Send them an executive summary:

But before that legal contracts to prevent disclosure of information or bypassing of the investment bank are signed. If you found the investor yourself, then an NDA won’t be signed probably.

The executive summary contains more details of the company and also about the sector. The summary has more numbers, details about the management team, product, etc. The summary could range from 15-30 pages. Here normally the entrepreneur makes a few pitches to convince investors.

The investors estimate the risks, valuation and the stake they might get. If it fits into their needs they’ll give the green signal for the next stage.

3. Business plan shared and valuation done:

The easy part is now over. The longest period of time is now ahead. The business plan can be prepared by the company and then rectified by the investment bank or completely built by the investment bank. The business plan consists of every single detail about the company including financial models, legal documents, etc. It is of utmost importance to have a genuine business plan with valid assumptions and acceptable estimations because all the lies and unacceptable numbers will come out in ‘due diligence’.

Using the business plan and financial models provided to the investor, the investor and the investment bank make ‘valuation models’ independently. The model uses a few estimations and assumtions to come with a number that estimates the worth of a company.

4. Negotiations and term sheet:

All the parties involved in the process come to the negotiating table. The valuation figures are shared without exposing the valuation models to have negotiating leverage. Negotiations over the valuation, stake, business plan, etc are held. Everything that an investor is worried about are discussed.

If the buy-side and sell-side parties are satisfied with the conclusions of the negotiations, a term-sheet is made (I’ve not experienced this or seen this stage, so I have a faint idea only). The term-sheet contains all the terms agreed upon, the clauses that allow exiting the investment, the division of shares, the kind of shares (preferential, non-voting, etc), etc.

5. Due diligence:

This is the longest process of the whole deal. After the term sheet has been signed, due diligence is begun. Due diligence(DD) is the process of checking the details provided in the business plan by the company. So there’s legal DD, tecnology DD, operations DD, organization DD, etc. This is done by the buy-side by either hiring a firm or doing it themselves. This is a very expensive and long process so it is kept till the end. The process can take time ranging from a few months to one year.

At the end of DD the report is prepared. If there a few discrepancies they can be overlooked or negotiated on or sometimes the deal is canceled.

6. Money comes in:

If the DD report satisfies the investors the deal is inked and money is transferred. All the terms agreed upon in the term-sheet are now in place. Congratulations!

In the whole process you can choose not to involve an investment bank or consultancy and do the whole process yourself. Its just always easier to get the experts involved.

———————————————–

So that’s the process of investment. A little more wisdom that I’ve heard from VCs, investment bankers.

1. Avoid looking for equity based capital for as long as possible.

2. The process is very time consuming so don’t hunt for capital when your company needs attention.

3. Take money only when you really don’t need it. i.e. when the company is doing well and not desperate for capital

4. Getting investment is not really always good news since you’ve given a lot of control to other parties. You might end up making no money in an exit if you do not have preferential shares or voting rights.

Hope this information helps some of you! I’ve tried to be as accurate as possible, but there are no steadfast rules.

16
Jun
08

Learning from the 17 days past.

Hurrah! I’ve completed 17 days of my internship without any disaster or missing a day. Its amazing I’ve followed a routine for two continuous weeks. I’ve always found following routines and timetables really hard. I like unpredictability and chaos. Surprisingly doing this internship has come quite naturally to me. Maybe because I love this job enough to do it for free.

I think I’ll like a 9-5 job(or a 10-6.30 job rather). People say they want to startup because they DON’T want a 9-5 job, I wonder if they want the 10-1am kind instead. I especially like the going back home part to a warm bath, good food and a movie. SInce I’m working in a startup incubated in an investment consultancy, I get to see and feel the experience of a startup as well as that of a medium size organization. Incubation of course means the pampering and having more resources at hand than the average startup, but that doesn’t cut down the work. Especially when you have competitors breathing down your neck. As an intern I get to go back home so do the employees of Intellecap, but the founders stay back and slog it out till late night. And not having a life of your own when you are not even 30 is hard to live with. I’m just wondering if the victory will be worth it or if the failure won’t kill your spirit.

I’m not sure if starting up will be easier for me if I have a family. Because it’ll be so much easier to leave the office. I remember last year in Chennai when I had a really bad place to live for the summer. It sucked my life out and spending time walking on the streets, was what I did instead of going to the room even after a long day. Thats the kind of a living place that’ll push you into spending time on work just so that you are distracted.

12
Jun
08

Reading list in Hyderabad

Every Sunday Abids and Koti market streets of Hyderabad turn into streets for second-hand and pirated books. Last Sunday I splurged on buying books to read for the summer. Since I hardly read any books(academic, non-academic) during the semester, summer’s the time to get educated.

So I bought the following books:

1. Three National Geographic Magazines of 1999.

2. Unaccustomed Earth by Jhumpa Lahiri

3. The enchantress of Florence by Salman Rushdie

4. The God Delusion by Richard Dawkins

5. The Art of Innovation: Success Through Innovation the IDEO Way by Thomas Kelley

6. The 22 Immutable Laws of Branding by Al Ries and Laura Ries

I started with Jhumpa Lahiri’s book, but the attention to tiny details is getting in her way of telling a story. I think its the detail to describing a Bengali lifestyle in the US that’s brought her the success. Its exotic stuff. I’ve reached page 40 and I hope I like it better in the next pages. I also flipped through ‘The God Delusion’, since I had been wanting to read it since early 2007. The introduction gave me an impression that atheist or not, Richard Dawkins is surely full of himself. His arguments are sometimes compelling, while sometimes appear to be an attempt to ridicule without basis of facts. And very frequently he uses the term ‘I’. My views on religion will put me in the ‘Deist‘ group, which means I believe in a supernatural power that gave us the laws of nature, but does not participate or interfere in life. I recently heard Bacon’s quote on God which said he believed in God because it was ‘optimal’, if God existed he would be rewarded, while if God didn’t, no harm. But not believing doesn’t give any possibility of a reward. I like his idea too.

03
Jun
08

May

I did lose a lot of subscribers in the past month. But I really couldn’t help it since I was completely without internet connectivity and I’ve realized its hard to slack off work when you don’t have cubicles.

So I had a great trip to Ladakh, which is the best district in the entire country of India. It is so unique in its natural beauty and the local culture of the population. Even in the short week I spent, I felt the extreme climatic conditions the local population seems to have adjusted to. I saw a huge desert and also experienced snow fall, in a difference of a few thousand feet in altitude. The mountains are absolutely breathtaking and were begging to be trekked. But unfortunately I was with my parents which ensured a very comfortable trip, but took out most of the physical exertion. So no treks and no late night explorations. Everybody who gets a chance has to take a trip to Ladakh, spend a week. Then plan for a trek either in the snow covered mountains or the rocky mountains. The localites are really friendly and honest. So you can depend on them for giving you tips, unlike my experience with Rajasthan.

After 10 days in Ladakh and Delhi, I landed in Hyderabad for my internship at Intellecap. Intellecap is an investment advisory consultancy. Most of their business is in the multiple-bottom line businesses. Basically businesses that create social or environmental impact. So my work is with the India Development Gateway, which is like a portal for entrepreneurs to reach out to investors for investment. Right now we are building the website and testing it out with a few entrepreneurs who are in advanced stages of running their company and looking for VCs. There’s nothing much on the site, but there will be a lot of changes and additions really soon. So keep checking for updates.




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