1. What is Private Equity / Venture Capital (PE / VC)?

PE / VC refers to capital provided to privately owned companies in return for shares or ownership in the company. Based on when this capital is raised, PE / VC is also referred to as Seed capital, Series A, Series B, Series C, Growth or Buyout capital. Seed capital, on one extreme of this spectrum, is an investment made at the earliest stage (business plan only) and buyout, at the other end, refers to the majority ownership of a more mature stage company by a PE Fund. Gaja Capital provides Series C or Growth financing – which refers to capital invested in smaller but high growth, profitable companies in return for a minority stake.

2. Is my firm at the right stage for a PE investment?

PE / VC can be raised at various stages of a company’s life cycle, as described earlier. However, since PE / VC is also the most expensive form of capital (compared to other sources of capital like say, debt or borrowings from friends/family), one must raise capital when there is a clear plan to use the proceeds and generate substantial returns on that capital.

3. What is the investment time horizon?

We stay invested for a period of 3 to 7 years.

4. Will I lose control of my business?

No. As growth capital investors, Gaja typically seeks to purchase a minority stake in a company. Investors that own less than 50% do not control the business but will require certain information and governance rights while they remain invested.

5. Will there be day to day inference?

No. We back entrepreneurs who have proven business models and have demonstrated an ability to run their businesses well on a day to day basis. Our participation is focused on adding value to the firm in areas in which you do not already have competencies – for example, fund raising or taking the company public (IPO) or in helping you acquire other companies.

6. How time consuming is periodic reporting and business reviews with Investors?

This depends on the preparedness of the company in handling quarterly and annual reporting and monthly MIS reviews. We encourage our companies to start behaving like a company that is already a publicly listed company and help our portfolio companies develop sophisticated budgeting, review and reporting mechanisms to mirror an eventual IPO scenario.

7. What kind of value-add can I expect?

Value-add is typically in two areas
a) Business - which includes aspects like new business development, senior level hiring, business planning, better governance and
b) Financial - which includes areas like Fund raising and M&A. Private Equity firms differ in their relative emphasis, ability and preparedness in these areas of value-add.

8. Will the PE firm help me go public?

Yes. Funds like Gaja Capital have a proven track record of successfully taking companies public (IPO) in India. Some of our portfolio companies, like Educomp, are ranked among some of the best performing IPO’s.

9. How should I think about valuation?

The price an investor pays or valuation is arrived at by mutual discussion. It takes into account the past performance of the company, the future potential of the business as well as the capital and other value-add that the investor will bring to the company.

10. What type of PE fund is right for me? What should I think about while selecting a Fund?

Selecting the right PE fund is as important to you as it is for a PE fund to choose the right company. Think of this as a 3 -7 year partnership and, as in most business partnerships, pay close attention to the people you will work with, the value the investor can add to your business and whether they have a demonstrable track record of being good, trust worthy, value-added partners Certain PE funds are known for specialized skills, sector knowledge or fund strategies that lend themselves better to certain situations – do take this into consideration while you choose the Fund

11. Is it better to contact Funds directly, or should one go through an investment banker?

The decision to raise private equity is an important decision for a company. Choosing the right partner is critical as you will be working with the PE Fund for a period of 3 -7 years. Investment bankers and smaller intermediaries play an important role in helping you prepare for such a step and in putting together the collaterals required to engage meaningfully with a PE fund. Investment banks also help you meet multiple PE funds and that might help in price discovery. However, dealing with fewer or one PE fund is often a more efficient and focused process that allows for faster closure, greater comfort and a more exhaustive discussion on all aspects of the partnership without any external pressure of a process.

12. How much time does it take to close a deal? What is the investment process?

Each potential investment is important to us and we have to take as much time as is needed to make an informed decision, but we will always let you know exactly what we are thinking. Our initial business diligence and meetings with the promoter and members of the management team typically take 8-10 weeks after which a term sheet is issued Post the term sheet acceptance, there is a period of 2-3 months for legal, financial third party due diligence and the preparation of the subscription and shareholder’s agreements.

13. What kind of structure should I enter into? Straight equity, Convertible?

Each transaction is unique and is typically a straight equity transaction (capital in return for equity shares). In certain situations, the valuation at which Gaja invests is based on future profitability or achievement of business milestones (structured). While this is explained in sufficient detail in a term sheet, we would encourage you to hire the services of a reputed and competent law firm to understand the pros/cons and implications of the transaction structure which is detailed in the share subscription and shareholder’s agreement.

14. What are the typical rights that a PE fund asks for?

Since a PE firm provides capital on behalf of its investors, it must negotiate certain special rights given its fiduciary responsibilities. These rights typically relate to corporate governance and reporting, special voting rights, rights relating to fund raising and/or exit scenarios, restriction on transfer of shares, anti-dilution etc.

15. How important are the legal contracts that we enter into? Will I need a lawyer?

Legal contracts are very important and we would encourage you to hire a competent and reputed law firm to help you understand the various covenants, rights, terms and obligations of the partnership.