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STAGES OF RAISING INVESTMENT

Written while pursuing the WBNUJS bussiness law diploma

STAGES OF RAISING INVESTMENT

The establishment and running of a new business or startup requires investments and this need no introduction , in other words if we consider the entire startup to be the cell , initial investment is the mitochondria i.e the powerhouse of the cell , the power generating unit . Raising investments is one of the primary concerns of an enterprise . Startups require sufficient amount of capital to initiate their operations as well as to expand their business . most of the businesses depend on concentrated efforts in raising capital but it should also be noted that this isnt a hard and fast rule and sometimes capital may even come from internal sources . Sometimes a startup may start with meager capital , or the initial investment is done by the founders themselves and thereafter the fund needed for expansion is generated by the cash flows in the business . The two main sources of raising capital are i) by raising funds i.e equity and ; ii) by debt . Keeping the present scenario in mind it may be said that it is notably difficult to raise investment for a business organized in any form other than a company from institutional investors . raising  investments from foreigners also become difficult particularly for business other than a company such as LLPs . Foreigners are more comfortable in investing in companies than any other business forms .

The word commercial intent plays an important part in the investment . \The manner in which  investment transaction will be carried out , the investment drafting and negotiation process is carried out , keeping in mind the commercial intent of the investment .

Now based on the intent of the investor , investment can be broadly divided into two categories :-

i)                    FINANCIAL INVESTMENTS   and

ii)                   STRATEGIC INVESTMENTS

WHAT ARE FINANCIAL INVESTMENTS ??

The investments made with the sole intention of making profit through dividend and appreciation of the value of their share holding over the years , is called financial investment . A financial investor be it private equity investors or angel investors invest with the expectation of making only financial returns in the form of cash flow . Financial investors generally have time boundations and they try to recover their invested amounts within that specific time ( a few years) and then  exit the company . Now let us get a brief concept about strategic investment .

STRATEGIC INVESTMENT

Strategic investments are the investments usually made by cash rich giants to smaller business starups in order to benefit from their business synergies . The main aim in strategic investment is to exert control over the smaller company and ultimately acquire controlling stake and merge the company with the investor company .

As discussed earlier the primary concern of any enterprise is raising investments . It should be mentioned here that there are certain stages of raising the investment . Let us discuss those stages in details .

Investment transaction basically takes place through six different stages , namely –

i)                    Approaching potential investors

ii)                   Expression of interest by investors

iii)                 Due diligence

iv)                 Execution of necessary investment document

v)                  Satisfaction of conditions precedent

vi)                 Inflow of money and compliance requirements

Now lets discuss each of the above mentioned points in detail ..

i)                    Approaching investors :-

This can be termed as the first stage of investment transaction where entrepreneurs are required to approach the potential investors to persuade them to invest in their startups . Investment banks often help in creating a vridge between fast growing early stage companies and  potential investors  as they have huge number of high profit seeking clients . The first stage in an investment transaction is the presention of the business plan and the commercial aspects of the company  seeking an investment to the potential investor . The next step what interested investors do is that , the execute a term sheet .

ii)                   Expression of interest by investors

Now as soon as the potential investor intends to invest in the entrepreneur’s business , it executes a typical term sheet or letter of intent . Now what is a term sheet ???

Term sheet – term sheet is a kind of non binding document dealing with theimportant commercial and legal issues of transaction in bullet points . Any of the clauses of term sheet may have binding effect but it has to be specifically mentioned by the concerned party as binding such as any kind of confidentiality cause relating to any business plan where the parties will be under an obligation not to disclose the business plan or commercial intent of the company or business with any other third party . Investors may also persuade the promoter to observe an exclusivity period i.e a period during which the promoter wont be able to approach other potential investors . This gives time to the investor party to rethink the deal and imposing an exclusivity period also gives thm room to negotiate the particular deal  if it had not been closed .  Investors may also propose to insert a “break fee” clause requiring the promoter company to incur certain costs borne by the investor . The term sheet also deals with the agreement of the parties  over material terms and conditions which form the basis of creation of the definitive legal agreements such as share purchase agreements , share holders agreement etc . A term sheet should from its very inception clearly indicate the commercial proposals of the investor .

LETTER OF INTENT

The term letter of  intent as it sounds is actually self explanatory . In simple words it means a document containing words that clearly declare the intention of the writer . It is synonymous with the expression term sheet . From a legal sense a letter of intent lays down the basic commercial proposals , mutual understanding between the parties on key issues , any special clause mentioned by any party. A letter of intent generally provides for an exclusive negotiation . Most provisions of Letter of intent is non binding i.e same as that of term sheet . A major difference between term sheet and letter of intent is that a term sheet is written in bullet points whereas a letter of intent is written in paragraphs in a detailed manner .

Now what are the exact functions of a term sheet  / letter of intent ???

Both term sheet and letter of intent –

ð  Mentions the understandings between the parties on key issues

ð  Mentions the intents of the parties and the commercial proposals of the investor

ð  Provides a basis for negotiations

ð  Mentions any kind of special clause mentioned by any of the parties be in confidentiality clause or  break fee clause i.e paying of a specific fee by the promoter to the investor

ð  Creates a documentary basis for soliciting loans / finance etc\

It must be noted here again that a term sheet is supposed to be prepared by the investor . It is an investor ‘s thing . After presentation of the term sheet / letter of intent by the investor the deal becomes open for negotiation and both the parties negotiate over key issues relating to the investment   keeping in mind the commercial intent of the startup founder i.e the commercial intent of the promoter . After the negotiations are complete the first round of investment documention is circulated . The next step includes negotiation of the wordings of the investment documents by the lawyers of both sides or even entrepreneur and investor from their respective sides .

iii)                 Due diligence

The terms due diligence literally means a vivid research done to evaluate the commercial potential of the business or to avoid any burden of any trouble / loss in future , it may also be said to be identifying of the potential negativities (by conducting a vivid research) and renegotiating the deal . Due diligence can be of different types depending on the situation namely financial due diligence , environmental due diligence ,legal due diligence , factory due diligence , etc . If the investor  discovers some preexisting /potential threatsor risks relating to the deal  , he may order the carrying out a due diligence to identify and minimize these already present / potential risks. If after the due diligence serious non compliance with the existing laws are found then the investor may opt not to proceed with transaction further or ask for specific indemnity , warranties . Sometimes the irregularities discover as a result of due diligence is placed in condition precedent and the promoter must rectify those before proceeding further with the deal . Now there are time boundations in the process of conducting due diligence . As per the company law , past records of a company can be examined to a maximum of past 3yrs whereas in case of environmental records past 7years of records are usually taken into account .

iv)                 Satisfaction of condition precedent

After signing of the investment condition the promoter has to fulfill all the condition precedents specified in the investment agreement and also take necessary steps to regularize the risks mentioned in the due diligence report .

v)                  Inflow of cash

After the issuance of completion certificate by the director of the company once the necessary actions have been taken the investor and the company appoint a date specified within the time period mentioned in the agreement  for receiving money from investor , issue of shares to investor , adoption of amended articles .

WHY IS GANGA ALSO KNOWN AS BHAGIRATHI ?? WHAT IS THE REASON BEHIND GANGA FALLING FROM SHIVA'S HEAD.

Well , the story begins with a Suryavanshi king  named Bhagirath . The ancestors of the King were cursed by Kapila Muni as they had caused certain disturbance to the Muni's meditation (Tapasya) for which the muni turned them into ashes . The king wondered whether his ancestors could live again or attain Moksha and how to set his family free from such a curse . He went to Kapila Muni and asked for the remedy .  The Muni told him that only if he could immerse or pour the ashes of his ancestors in River Ganga , they will be eligible to have a rebirth and attain moksha .

At that time Ganga used to be a river of the heaven .Earth was not a part of her course . King Bhagirath did a rigorous meditation (tapasya)also known as  BHAGIRATH TAPASYA / BHAGIRATH PRAYAS, pleaded with maa Ganga and persuaded her to come to earth . Ganga Agreed but warned the king of the disaster she will be bringing with her . She told the king that the force of her fall will be so exorbitant that it will end up destroying the earth . Bhagirath then approached Shiva and requested him to save the world from such a disaster . Shiva allowed ganga to fall on his head and contained the force that she brought with her in his locks and made her fall on earth with reduced strength .King  Bhagirath was then able to immerse the ashes of his ancestors in the river and they were reborn .

This is the reason why ganga is seen falling from Shiva's head . And just because king Bhagirath did rigorous tapasya to call Maa ganga to earth , it is also known as Bhagirathi .

Special thanks to Devdutt Pattnaik for enlighting us .

Purushottam Shri Jagannath's Snan Yatra

Purushottam Shri Jagannath's Snan Yatra

     " MAHAMBODHESTIRE KANAKRUCHIRE NILASIKHARE
            BASANN PRASAD ANTE SAHAJA BALABHADRENA BALINA
       SUBHADRA MADHYASTHAH SAKAL SURASEBABASARADO
       JAGANNATH SWAMI NAYANPALGAMI BHABATU ME // "


The 9th of June 2017 , as per the Hindu Lunar Calender will be having an altogether different significance this year . Jyestha Pournima  or full moon day in the month of Jyestha (as per hindu lunar calender) is on 9th of June this year . Jyestha Purnima is also celebrated as Purushottam Lord Jagannath's Snan Yatra .

LORD JAGANNATH

Lord Jagannath also known as the LORD OF THE UNIVERSE where Jagat = universe and Nath = lord,is considered a form of Vishnu and is worshiped along with two other hindu deities lord Balabhadra & goddess Subhadra on the Ratna Vedi (jeweled dias) located in the oldest jagannath temple in India , puri . The lord of the universe is mainly worshiped by the Hindus and the Buddhists in the states of West Bengal , Bihar , Orissa , Chattisgarh , Assam , Gujrat etc . Lord Jagannath is believed to have tribal origin as per the Hindu Mythology and is also known as Nil Madhava , the tribal god , in some parts of Orissa . The oldest and the most famous Jagannath deity is established in Puri , a city in the state of Orissa . The sacred temple of Purushottam Lord Jagannath in puri is considered to be one of the char Dhams  (four hindu pilgrimage places). The temple of the lord is located in Shrichetra i.e a peeth as per the Hindu mythology . The presence of Goddess Vimala makes it a peeth along side a dham . The shrichetra used to be in the shape of a conch shell in earlier times but as times passed , development took place and the geography of the temple premises changed . Apart from the triad companion deities jagannath is also worshiped along with Sudarshana chakra who stands just alongside him in the Ratna vedi located in the Garbhagriha (inner sanctum sanctorum ) of the temple .

SNAN YATRA OF THE LORD

On the day of jyestha Purnima ( 9th day of june , this year) the lord along with the principal companion dieties Balabhadra and Subhadra are brought out of the garbhagriha of the temple in a traditional procession known as dhadi Pahandi to the Snan Mondop .

The dieties are then bathed with 108 pitchers (golden) of water (jagannath - 35 , balabhadra - 33 and Subhadra - 22 , sudarshana - 18 pitchers of water) collected from a well known as the sona kua situated in the temple premises . The deities are then dressed in hati vesha or gajanan vesha (like an elephant) .

As belived by the devotees , the lord after bathing with so much water during the snan yatra fells ill and remains inside the temple for 15 days (approx.) to take rest without showing himself to the devotees . The lord again gives darshan to his devotees on the day of Rath Yatra , approximately 15 days after the snan yatra . So technically it may be said that from the day of snan yatra till the day before rath yatra the deities are not to be seen on the 'Ratnavedi' inide the sanctum . Usual rituals go on inside the temple and the deities are worshipped secretly . The deities appear in front of public again on the day of the Cart festival i.e Rath Yatra .

References -

jagannath.nic.in

Purusottam Shree Jagannath by Padmanabha Mahapatra

Wikipedia

Google images

MY FIRST INTRODUCTORY POST

My First Post

Hello readers , for personal reasons I prefer not to disclose my original name . this is my very first post and actually I have no idea what I will be doing with this blog in the upcoming days ,I think I m typing unwantedly long sentences just to check whether my keyboard is working properly . 😃😃😃😃😃 . well Jokes apart , I m planning to write on a regular basis and will be trying my level best to cover topics from diverse fields . Mainly I will be focusing on topics related to cuurent  affairs , technological know howz and also bit of legal knowhow .........

I hope my posts will attact prospective readers ........looking forward to begin my journey ......