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How can corporates make money

November 07, 2007 10:05 IST
Does Corporate Finance baffle you? How do corporates raise money? What are the new avenues open to raising finance? How does Private Equity work? What is AIM?

In an hour-long chat on rediff.com on Tuesday, corporate finance expert Sunil Shirole answered many such readers' queries. Here is the transcript:

Sunil Shirole says, Hello everybody, this is Sunil here. Welcome to the chat and lets make it an interesting one for all
vbkurhade asked, Hi Sunil; nice to have you on chat today. From a VC point of view what should be strategy of aspiring enterprenuers; also many a times busniess plan gets stolen as NDAs are not signed. As a corporate finance what is your advice here. Thanks in advance
Sunil Shirole answers,  at 2007-11-06 15:02:25Hi, its very important to choose the right VC. An advisor is of paramount importance here to guide you thro the process. Yes NDAs are not always adhered to and that is another issue. So in summary choose the VC partner carefully with the help of a good corporate finance advisor
vbkurhade asked, For a startup what are the new avenues open to raising finance?
Sunil Shirole answers, For a start up VC or Angel funding is probably the best option
kamalakannan asked, what is the procedure to start up a public venture
Sunil Shirole answers, Hi you will need to set up a corporate entity first. It could be in the form of a firm (prop or partnership) or a pvt ltd co. It is increasingly easier to do so nowadays
asked, 
Sunil Shirole answers, Hi Shashi, to avail of VC funding, you will need to prepare a good business plan with realistic financial projections. You must have a unique proposition that will catch the interest of VCs. YOu do not need to provide any collateral as the VC will give you equity capital
quack asked, For strategic finance for a startup what is the going rate from a investment bank ?
Sunil Shirole answers, Hello Quack, good job you are not a doctor :-) strategic finance by its very definition is not a loan and thus will not carry any interest rate unless it is mezz finance. Mezz deals are being done in the high teens
asked, 
Sunil Shirole answers, Hi Monica, there are numerous VCs registered in India with SEBI. You can get a list from the SEBI website. ALternatively appoint a good corporate finance advisor who will know VC funds personally and be able to get you meetings. Same with Angels. Angels dont like to meet too many people so its better if you go thro somebody known to them. There is a band of angels in Mumbai and their details are available on the net
asked, 
Sunil Shirole answers, Hi Mandeep, Todays Eco Times carries an article that India is the new hot spot for PE in Asia and has now overtaken China as the biggest destination. So rest assured the market is really buoyant. On the flip side valuation expectations are quite stretched as the public equity market is going thro the roof. AS regards sectors, infra, ITES, healthcare, auto ancillaries are good
Venks asked, With increasing stories of funds squeezing out investors, what is the best way to protect the interests of an entrepreneur?
Sunil Shirole answers, Hi Venks, we see most valuations are being done on a multiple to EBITDA basis. Depending on the industry and growth rates, the multiples differ. Entrepreneurs need to be careful that the funds dont squeeze them too much. Again thats where the promoters should seek the help of a good investment banker or corporate finance advisor
asked, 
Sunil Shirole answers, Hi Hariom, convertible warrants usually refer to instruments that become convertible to equity at a later date. They are offered to stakeholders at a discounted price
vbkurhade asked, Sunil, As emerging markets I understand India China will be hotbed to some extent for new ventures but With weaker Dollar and Stronger rupee do ou think India will get more VC funds or lesser?
Sunil Shirole answers, Stronger rupee is already giving an upside to investors. SO a appreciating rupee is great for an overseas investors point of view as he gets an appreciation just on the currency over and above the appreciation in the investment
sanyukta asked, Sunil, after the PE/VCs invest in a business what are their expectations in terms of return on investments?
Sunil Shirole answers, Most of them have an IRR hurdle of 25 to 30%
asked, 
Sunil Shirole answers, Most banks are going slow on RE proposals at the moment as the sector is very hot. I personally dont see FDI being barred from the sector.
asked, 
Sunil Shirole answers, Hi Vivek, as I said earlier PE returns expectations are typically in the range of 25 to 30%
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IRR. On the other hand VC return expectations are much higher given the higher risk profile and early stage life cycle of the investee company
soumyendu asked, How are you Sunil ?
Sunil Shirole answers, Harried with qs as you can see :-)
asked, 
Sunil Shirole answers, The process usually takes between 3 to 5 months depending on the level of preparedness of the company seeking funds.
quake asked, If an investment bank is engaged to identify strategic finance source what percentage is typically charged for a startup trying to raise about USD 5 mill
Sunil Shirole answers, The fees range between 2 to 5% of the funds raised. Smaller fund raising may not be taken up by investment banks but boutique funds would
asked, 
Sunil Shirole answers, VCs usually will do deals larger than $5mill while Angels typically do deals that are in the range of $100,000 to $1 million. Both will lay a lot of emphasis on the promoter.
asked, 
Sunil Shirole answers, Angels range $100K to $1 Mill VC : $5 mill to 10Mill PE: $10Mill and above Yes Angels and VC do look at start ups. In fact some will even look at business plans though the trend is less after the dot com bust. PE generally will look at growth capital with established revenues
vikra asked, I have a running Training and Recruitment Business since 3 years, but now I feel I want to make it grow. How do I approach VCs and what qualities of a Venture usually INTERESTS them.
Sunil Shirole answers, You should approach them with a good business plan which clearly defines the quantum of funds you are looking to raise, purpose, utilization, and expected return and exit for the investor. You must have the ability to scale up and the business itself should have great market potential
asked, 
Sunil Shirole answers, Hi Ankita, thats a good question. Most VC do not invest to be there forever. So they definitely want an exit after 5 to 7 years. Exit strategies could be strategic sale or IPO
vikra asked, Hi Sunil, Who can help me in making a Good Business Plan to get the Interest of VC/Angels in my Business Venture? Who should I approach first?
Sunil Shirole answers, HI Vikra, you should approach a corporate finance advisor who is active in this market. Many CA firms also do this but I have found their approach to be too rigid.
vbkurhade asked, sunil, if you have worked closely with any Western enterprenuers And also with Indian ones. If you have any observations on Weaker areas with Indian ones in Business Plan Financial/Marketing section or so pls share them
Sunil Shirole answers, Yes I interacted closely with several European and German promoters. There approach is very different to that of Indian promoters. Indians typically tend to over inflate numbers and projections. This sometimes leads to VC funds discounting their claims heavily.
vbkurhade asked, sunil, if you have worked closely with any Western enterprenuers And also with Indian ones. If you have any observations on Weaker areas with Indian ones in Business Plan Financial/Marketing section or so pls share them
Sunil Shirole answers, Yes I have interacted closely with several European and German promoters. There approach is very different to that of Indian promoters. Indians typically tend to over inflate numbers and projections. This sometimes leads to VC funds discounting their claims heavily.
asked, 
Sunil Shirole answers, Hi Prachi, it helps the company grow rapidly. Also many VCs help the companies streamline their corporate governance and strategy. They usually take a board seat and several also take seats on the operating and executive committees
Wasil asked, what is a backdoor listing?
Sunil Shirole answers, Its when you acquire a company which is already listed but non operational and then make that your operating company
asked, 
Sunil Shirole answers, Hi Rajendra, ECB is not the flavour of the month as the RBI does not want too much FX flowing in. But having said that several international lenders are happy to lend to Indian companies. Sources are chambers of commerce or trade associations or consultants in the field
Wasil asked, Sunil what exactly is the need of a backdoor listing? Thank you
Sunil Shirole answers, you dont need to go thro the whole listing procedure yourself - which is not only expensive but also time consuming. Moreover in India companies have to be profit making for at least 3 years before you go for a listing
Sunil Shirole says, Thanks everybody. It was a pleasure being on the chat. I look forward to interacting with you again. Ciao

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