Being a deal maker, requires being part super networker, part financial wizard and part legal eagle. Nevertheless you don’t need to do it all by yourself. For legal, you can get help from good a lawyer. However, you do need to be familiar with the basic documentation that make deals happen. It’s amazing how much you can do with a simple piece of paper with words and a signature!

During the process of dancing with your private equity friend, you may come across three key types of legal documentation, the 1) NDA or Non Disclosure Agreement (also called Confidentiality Agreement), 2) the Term Sheet (also called Letter of Intent) and 3) the Definitive Agreements (that include Share / Stock Purchase Agreement aka SPA or Asset Purchase Agreement aka APA and in some cases an Investment Agreement) and miscellaneous complementing agreements such as the Employment Agreement drafted to incentivize your investee management team or the Financial Advisory (Management Consulting) Agreement drafted to make the private equity house some annual income.

Later on, we’ll only go into detail with the Term Sheet as it forms the basis for high level terms and conditions of a deal. This is where the art of deal making starts and you will get a feel for whether a deal will materialize, where the expectations of both parties are managed. Once both the private equity financier starts to tango with the entrepreneurial founder, you will see how both mature into a serious buyer and seller. Like any negotiation, it will involve a bit of pulling and pushing. If you’ve reached this stage, you’ve reached far, but it ain’t over till the fat lady sings… and with the Term Sheet, she’s just started eating!

A Term Sheet (or Letter of Intent in legal parlance) usually provided by a private equity firm is a pre-acquisition / pre-funding agreement that shapes the understandings of both parties. The purpose of the Term Sheet is to outline the proposed transaction terms as well as indicate the value of the transaction.

Although usually non-binding (with the exception of NoShop / Exclusivity / Confidentiality), it serves as a bridge of good faith between the initial negotiation and the definitive agreements. Consider it a tool for facilitation. The Term Sheet spells out the preconditions to closing the deal, such as due diligence, price, payment terms, exclusivity, valuation and can get as complicated as you want depending on what stage you are at in your discussions. If all terms are agreed, the terms signed upon become a proxy and form the basis of the definitive agreements which are drafted by the lawyer.

Generally private equity firms will take the first mover advantage of drafting the contract. This is a tactic we use with any agreement. It’s costlier in terms of legal fees, but that’s a part and parcel of being a financier. We’ll get into more advanced discussions on the various terms and conditions, or what forms the anatomy of the term sheet, including but not limited to:

• Binding – Confidentiality
• Binding – Expenses
• Binding – Go Shop
• Binding – No Shop (Exclusivity)
• Binding – Non Compete (CNC)
• Board – Composition
• Board – Election
• Indemnification
• Legal – Fees
• Legal – Opinion
• Pay To Play
• Preference – Liquidation
• Preference – Participation
• Preference – Dividend
• Provisions – Protective
• Provisions – Lock up
• Representation & Warranties
• Right – Anti Dilution Rights
• Right – Drag Along Rights
• Right – Conversion Rights
• Right – Future Rights
• Right – Information Rights
• Right – Management Rights
• Right – Pre-emptive Rights
• Right – Redemption Rights
• Right – Registration Rights
• Right – Right of First Refusal (ROFR)
• Right – Right of First Offer (ROFO)
• Right – Tag Along Rights
• Right – Voting Rights
• Valuation
• Vesting

Although the above may sound like greek or latin to some fresh entrepreneurs, the fact remains that the Term Sheet consists of many moving parts, for which valuation is just one part of the equation. (And btw here’s something from the trenches: we bankers never quote a hard and fast valuation at the beginning, its always a “range”. Counter tip to deal with us: Never use the word “between” instead use “above” when discussing valuation.)

I’ve been thinking about putting together a good handbook for private equity professionals (venture capitalists can also learn from us!), one that not only covered technical subjects but one that would also touch upon the nuances of deal making. But I didn’t want to limit it to just us investment professionals, I also thought about the many other skill sets that could be learned and used in business. Accordingly, I came up with the following sections that I thought every upcoming deal maker should be familiar with:

1. Anatomy Of The Term Sheet
2. Negotiation Strategy Skills
3. Relationship Building Skills
4. Valuation & Financial Analysis

What do you think? What would you like to see in these sections? Email me, it’s the fastest form of communication!

I initially subscribed to the idea that meetings are/were a waste of time. Hyped by founders of 37Signals, in their book Rework, Jason believes that meetings are toxic and promotes the same in their website: Boycott A Meeting Day. But then if you’re a thinking animal, you’d at least wonder what their agenda was, why are they pushing this idea. They sell productivity web-based software. Aha!!

The logic was that if you had a one hour meeting with five of your team mates, you’d be wasting not just one hour but five hours. Yes, one hour of each person. Okay… fair enough.

But sometimes life is not about productivity only, it’s also about relationships. We are after all, the social species. In fact, more business is done through relationships than through just being productive or hardwork.

If you have nothing new to discuss, or find that time flies by in a meeting. Don’t sweat. There’s a thing called team building (unfortunately, today’s iPod generation don’t understand this too well), it’s about understanding how everybody responds to work related matters. Just consider the meeting time as a way to get to know each other better.

If you look at the reasons Jason and David fire out, you’ll start to realize they don’t understand how to do meetings well. Their suggestion to avoid them is at best a false sense of ‘I know this better than you do’. They’re probably social and life skill disabled (I don’t blame them, they’re geeks). Or they’re just pure genius; sell people on the idea that meetings are a waste of time – and convince them that this ‘special’ software is the best solution. Hmmm… reminds me of web-conferencing companies selling the hazards of flying.

What is the solution? Know what kind of meeting you require, there are various types. And for heaven’s sake – don’t blame the people who attend it, blame those who lack a clear Mission & Purpose. (That’s usually the founders of the company!)

Setting up a virtual business is no easy task. The cost of doing so may be little, but there is a lot of effort to it. All the information, files, documents – soft IP will have to be protected. If I were a consultant – this is of more importance than anything, as that is my leverage tool. Here are a few things I’ve learnt along the way, and I thought I’d share them with you…

Keep ALL files in one single location & backup regularly – If you work on two different computers, you will most likely have two copies of a document. Avoid this, either by syncing or using only one computer – and backing up to the cloud, or some secure location (frequently). By using only one computer, you only have to worry about backing up. By using two or more, you need to worry about syncing all files. My solution to this is DropBox (they have apps to install on Windows/Mac as well as a web-based interface, in case you cant install – use the DropBox Portable).

Keep Your Business & Personal Files Separate – If you’re running a virtual operation, you need to keep your files in separate folders. You dont want to accidentally provide access to your business files only to share the wrong personal diary! It’s healthy.

Email – I could write a entire book on Gmail and the use of email. It serves as a record, database, knowledge, blogging platform, chat, collaboration. No other software has such great features (yet). Add to this the integration with Google Calendar, Google Docs, Google Tasks and Google Chat – and you have a killer communication platform. Go for Google Apps for Domains – this way, you can user your own domain / website to manage your entire virtual enterprise.

Use Tag/Label, Filter, Shortcuts in Gmail – a big time saver for organizing your emails, enabling them to be searched faster, tracking conversations threads.

Blog – I’ve learnt one important thing from blogging and that is expression of thought. Depending on the field of your specialization, I can only suggest having a blog. I use WordPress to create a private membership site – that publishes everything regarding my operations, track record, newsletter, updates, alerts etc to my members. You can have a mix of both.

Aggregate – I gather information, bookmark and research stuff using Google Reader (by subscribing to an interesting site’s rss – you create a database aka archive that can be searched later on). I use Evernote again to keep a copy of any full webpage that I want to visit or read about later.

Share – I distribute information/links on Twitter now. If I see something interesting, a bookmarklet – allows me to share the site as a shortened URL with a short comment. The short message gets distributed to those who follow me (targetted broadcasting i.e. narrowcasting), whilst also appearing on a public domain (twitter site) – means if anyone is searching for something – they can also see what I’ve shared.

Bookmarks – I no longer use delicious, instead, bookmarks I like to revisit are stored locally, and synced using xmarks.com (addon for mac & pc). But since sites can go down in the future, I like to keep a copy of the text with me. Evernote serves the purpose.

Network – with all the social media hype going on – I only found LinkedIn useful. I found it useful, because I know that people who at least update their profile – are serious about some kind of professional relationship. You can meet an interesting set of people. I just wish LinkedIn had a built in CRM feature (with Gmail Integration). Read Never Eat Alone.

Measure – Always measure whatever you do. There’s a saying by famous Management Guru Peter Drucker – if you can’t measure it, you can’t manage it.

Accounting – which is based on the above point. Gotta keep those books uptodate – use Xero.com – a New Zealand based group, offering web-based accounting. Good enough for now. (I needn’t say this, but get a good accountant! Luckily, I work with some great guys in my bank – who are willing to help me keep the books!)

This is just the “start”… let me know what you’d like me to cover.

I should title this as – Investment Damage Control. Ok, “after” so called asset allocation – you find out that screwed up. Then what? Well, rectifying the loss is not easy. Today, a lot of people have seen their investments reduce by half – yep 40% – 50%! There’s a saying –

You don’t want to jump off a roller-coaster.

If you withdraw – you stand the chance of seeing the market recover and you are sitting with idle cash (assuming you didn’t invest it elsewhere in more profitable investments, which brings me to another point – don’t withdraw unless you’re quite confident that the new investment will do better than existing).

Ok, damage control.

I assume you’re going to be generating income from other sources besides your investing. In that case, the first step is to build a cash fund – an emergency fund that can take care of your living expenses for 12 to perhaps even 24 months! (You should know ur monthly expenditure average after living so long…)

You can achieve this by NOT investing for a while. That means, instead of putting your monthly savings into investments – you park them as cash. Automatically, your allocation to cash increases. The sooner u do this the better. If you need to liquidate some really stupid investments – do so at your own risk, but whatever you do… try to build this cash allocation “amount” first.

Then follow the simple formula… 80% equity (of which 50% in international/emerging markets) . 20% Gold & Cash. I’m not including real estate for a reason.

I’ve always wondered why great companies are built / started in U.S. This is my open letter to Indian Entrepreneurs!

You guys are good. But why don’t we see a Google or Amazon or Ebay or Skype or Twitter or Facebook (or even a Posterous ;) come out from India? We have some of the best brains – but why can’t we innovate? Why can’t we find solutions to problems? Why can’t we help people? Why can’t we make things? Why can’t we develop billion dollar companies? Why can’t founders with nothing but some spare change and their hard work as equity, build up businesses from scratch. Why is Infosys an exception?

Do you think it’s the Indian crab story? Why is the younger generation fixed on a steady job? Is it because failure is stigma? Did someone tell you, you’re too young and need experience through a job (tell them to get lost!)? Is it because you don’t have good VCs backing (you dont need them!)? Is TiE not doing enough? Are you not doing enough? What happened to the risk taking ability of Indians (I love NRIs for this reason)?

I’ve always wondered about retirement… What is retirement? Why should we retire… retire from what?

If you’re working and really dont like your job – then I can safely expect that either you want to quit and retire or you wan to quit and do something else. But what happens if you like your job, you have the energy to continue at it, you have the passion for it… will you ever retire?

It probably all boils down to pursuit of happiness (I hope you’ve watched the film!). Are you happy doing what you do? Do you find it just enough challenging to keep you motivated?

I think using the word ‘retire’ is not right… perhaps semi-retirement or perhaps living ‘your life’ would be more appropriate. If there was no difficulty or hard work in life… we’d become untoned flab… the hard life tones you physically, emotionally, spiritually and mentally. No challenge

I really should do a detailed article about this… and start planning something – whether i live that long is a secondary question that needs to be addressed. But since we have no crystal ball to see the future, we have to use the best possible means to figure things out.

Are you working too much? Workaholic? Well, it could be one of the following reasons: 1) you have no clue why you’re working so hard 2) you’re trying to impress others 3) you’re trying to get a promotion or rewarded 4) you have nothing better to do with your time instead 5) you’re hiding in the office because you dont want to spend time with your wife and family or friends! or ultimately… 6) you enjoy it as a hobby and you’re getting satisfaction from it.

I’m not too particular about using Mutual Funds. For one, its the lazy way out… people just want to pass on the responsibility of managing their money to ‘professionals’ or ‘experts’. I agree, many don’t have the time… but there’s also the law of compounding that applies to the management fee of 1% – 2% charged every year by the Fund Manager, despite the performance of his fund. Granted, this is the way business is done.

But just because it’s done like that, it doesn’t mean you have to follow that.

A lot of Fund Managers talk about SIPs – Systematic Investment Plans. They use this as a way for you to continue pumping money into a fund, so they can continue to build up their management fees.

There’s nothing wrong with SIPs – and I sincerely believe it’s best for you over the longterm. But you need to identify which Mutual Funds are worth investing in. You have over 3,000 schemes to chose from – so that’s not easy!!!

If you really want to do well as an investor over the longterm, then here’s my best suggestion:

1. Identify 10 – 15 companies that you feel strongly about and understand them.
2. Invest in each company an equal amount of your savings.
3. Follow your own Systematic Investment Plan – just allocate every month / quarter a fixed amount into these companies. (Set up your calendar)
4. Retire as a millionaire! (That’s easy :)

I know… you were expecting an article on mutual funds… so I’m giving you my pick of mutual funds, which have performed fairly well over the last couple of years – that *consistency* is what I look for:

• DSP BlackRock Equity Fund (Growth)
• HDFC Top 200 Equity Fund (Growth)
• HDFC Equity Fund (Growth)
• Sundaram BNP Select Midcap (Growth)

And for the tax conscious ones:

• Franklin India Taxshield
• Fidelity Tax Advantage
• HDFC Tax Saver

(As you can see, I have a preference for HDFC based funds. That’s not bias… its performance.)

P.S. If you want to learn more about these funds and why I chose them, subscribe to JPM’s MoneyTree.

Ok, I thought I’d get a bit philosophical… just goes to show that I’m in a Zen state… maybe its the wine that’s helping!

Planning… would great cities have been built without any planning? The latest tools were created by effort, application of ideas, planning, trying… But do you leave out God from the equation? Is not God in control of everything, are things pre-determined, pre-destined, all written out that this is how our life is going to be? I don’t think so… my mind is limited, so let me stretch it a bit with a mental exercise.

Let’s say we have the ability to plan things, we plan, we enact upon it. Perhaps there are multiple dimensions to our world, we’re probably only aware of time, space, energy, matter – so that’s four. Perhaps there are others… multiple paths that are before us, but once we chose a path, we are setting ourselves in a particular direction… depending on our choices, we move in special way… now the question could be raised that this ultimate collection of choices that make up the path we’re on – perhaps that is known by God. Perhaps that is pre-determined.

Can we as humans, set up our minds upon something, and work towards its attainment. It appears so. What do you think?

We deal in Social Capital. It’s what dreams are made of… you wont find it in your accounting books.

It’s about relationships,
it’s about people,
it’s the human touch…
- its priceless.
It’s not automated,
it’s not mechanical,
it’s not high tech…
- it’s high touch.

You’re real and so are we.