Selecting a Private Equity Investor

A lot of businessmen would have raised money or are planning to raise money from a private equity investor to expand their business. Based on personal experience and after discussions with many other entrepreneurs, I am giving below a list of points to watch out for as you go through the process of selecting a Private Equity (PE) investor from a list of potential investors:

Remember that a Private Equity investor is the business of making money from money and therefore his interest will be primarily in getting a substantial return in as short a period of time as possible. You need his money and he needs your company to get a return on his money. Always remember that he is as interested in doing a deal as you are.

1.     Build a relationship with a strong Investment Banking firm

Find a good investment banker who will hold your hands through the PE selection and investment process. Investment Bankers specialise in some industries and you can find them through your network of friends. Talk to at least three short listed Investment bankers before you take a decision. Once you have decided, let them go through your business plan with a tooth comb and ask them to critique it. The Investment banker will then guide you on who to go to and what your valuation should be pitched at.

2.     Find out what the PE players brings to the table other than money

It is very important for you to select a PE player who brings more than simply money to the table. PE players, like investment bankers, specialise in industries and you should expect them to get you introductions to other players in your business as well as in the circles that may influence your industry. Watch out for “glib talkers” who may promise the moon.

3.     Do your own due diligence

Just like a PE player will conduct a due diligence on you and your business before he makes the investment. Make sure that you also do your own diligence on the background of the PE player as well as the investments he has made. If you can talk to one of their investee companies, you must do so to understand from a counterpart their experience with the PE player you are contemplating to give a piece of your business.

4.     Study the term sheet very carefully

You will be in a hurry to get the investment. Most promoters do not read the fine print of the term sheet. It is only later when the conditions of the term sheet start to be implemented does the promoter realise what he has signed up to. By then it is too late. At the cost of delaying your investment, make sure you spend the time required to read through your agreements very carefully. Once the agreement has been signed you cannot say that you did not realise what had been written!

5.     Use a lawyer you trust to get your agreements done

The detailed agreements are critical. The PE player will generally work with the big law firms. You don’t have to – first the big firms will be expensive and second, they may have a conflict of interest with you. Use a lawyer you trust who can guide you through the maze of the legalese in all the agreements. Understand how multiple agreements are linked together as well as all the terms you are signing up to including guaranteed IRR’s, tag along, drag along, QIPO, Liquidity Preference and similar such conditions.

6.     Don’t get pushed into growing your business at a rate that your PE investor wants

Finally, make sure that you grow your business at a rate that you can manage without putting stress on the business or your management team. If your PE player pushes you to grow faster than you believe you can, it is better to push him back earlier than to get caught in a difficult business situation. Watch out for “spreadsheet” specialists who will pound away on their computers to deliver mythical valuations for themselves and you!

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The author is the founder Chairman of Guardian Pharmacies and the author of the best-selling books, Reboot. Reinvent. Rewire: Managing Retirement in the 21st Century; The Corner Office; An Eye for an Eye and The Buck Stops Here - Learnings of a #Startup Entrepreneur. 

Twitter: @gargashutosh

Instagram: ashutoshgarg56

Blog: ashutoshgargin.wordpress.com

Chikungunya, Dengue - Have we learned any lessons from 2016 for 2017?

Delhi has witnessed its first outbreak of chikungunya after 2006. Malaria, which was supposed to have almost disappeared from Delhi is back with a vengeance. Chikungunya is an emerging, mosquito-borne disease caused by an alphavirus, Chikungunya virus. The disease is transmitted predominantly by Aedes aegypti and Ae. Albopictus mosquitoes, the same species involved in the transmission of dengue.

We have learned that Chikungunya results in high fever accompanied with severe debilitating pain, especially in joints.  Rashes can also be seen in severe cases. Weakness, dizziness, continuous vomiting leading to dehydration, very poor oral intake and bleeding are dangerous signs. We have been told that we must not let water collect anywhere and many people have been challaned because of their errant ways in managing water!

Politicians have blamed bureaucrats who have blamed MCD who has blamed politicians. Ministers have stated that Chikungunya does not lead to death while patients have cried about the passing of their loved ones. TV anchors have screamed at the top of their voices about accountability and newspapers have given these stories headlines, gradually relegating them to inside pages.

The monsoons have retreated, water logging has reduced and dried up, hospitals are now reporting lesser patients, the subject of ill patients has disappeared from the news channels and hopefully, mosquito borne diseases will disappear for this year. Everyone seems to have heaved a sigh of relief and as always happens in our country after every epidemic or emergency, the problem of this year has been “managed” and given the short public memory, this year’s challenges will soon be forgotten.

Knee jerk reactions to a health scare seems to be the norm rather than the exception with us. We know that this problem recurs every year and will continue to recur in the years ahead till we are able to eradicate the disease. So why is it that we are not able to plan earlier and reduce the severity of the impact of these mosquito borne disease? Why don’t our Governments have a task force that will focus on planning for the coming year?

1.    Identify and map the areas - Hopefully, after this years’ experience, the authorities would have mapped all the areas in our cities which they have identified as prone to collection of water. With proper planning, we can ensure that steps are taken to rectify all such areas well before the onset of the monsoons.

2.    Epidemiological evidence – Based on the records for the current year our health researchers would be aware of the strain of the virus and medication needed to handle this.

3.    Quick reporting of the outbreak is essential – this would mean setting up situation rooms / monitoring and evaluation centres in areas where we have seen the problem. These need to be manned and monitored with clear accountability and responsibility documents and communicated.

4.    Laboratories - These became a huge bottleneck in 2016. We should ensure that laboratories are identified and communication sent to the citizens. And of course, we need the tariffs for tests agreed and announced in advance.

5.    Feedback from laboratories needs to be collected on an hourly basis and analysed for course correction. Delays can prove to be fatal for some patients.

6.    Funding for the epidemic needs to set aside for all the actions that need to be taken now as planning commences for the next year.

7.    Hospitals, clinics, nursing homes and doctors should be identified and numbers and prices need to be widely advertised well before the outbreak.

8.    Education of the citizens is an ongoing matter and should become a part of the curriculum of schools rather than delay action till the problem strikes. Education should be in the areas of what to watch out for and where to report the disease. In addition, people need to be educated on making homes mosquito free; spraying all rooms with safe aerosols; using mosquito nets; covering water containers; drying water tanks, pets’ bowls and potted plant plates; not letting water stagnate and other such preventive steps.

Once a clearly documented plan is agreed and in place, getting it activated will be quick.

Finally, no mass health programme can work unless there is clear accountability established. No politician, bureaucrat or health worker can be permitted throw up their hands and shrug their shoulders. The blame game needs to stop immediately.

If Sri Lanka, one of the worst victims of malaria, can become malaria free, as certified by the World Health Organisation in September 2016, is it too difficult to hope that India too can reach levels of cleanliness where malaria and other mosquito borne diseases will no longer plague our citizens?

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The author is the founder Chairman of Guardian Pharmacies and the author of the best-selling books, Reboot. Reinvent. Rewire: Managing Retirement in the 21st Century; The Corner Office; An Eye for an Eye and The Buck Stops Here - Learnings of a #Startup Entrepreneur. 

Twitter: @gargashutosh

Instagram: ashutoshgarg56

Blog: ashutoshgargin.wordpress.com

Why Startup Operating Systems Crumble Under Pressure

When rapid growth takes place in a young startup, pressure is on getting business and ramping up. During this critical stage, the weakest link is generally the systems that have been put in place to manage the growth.

Most promoters and managers under pressure for growth tend to cut corners and take short cuts assuming that once the business starts to roll in, systems will take care of themselves. Weak systems always have long term implications on the organization but in the short term, the concerned manager is able to “show” that he has met his short term and immediate targets.

In the early years after I founded Guardian, I was faced with many such issues as we grew quickly. Some of these were:

·   Operations: With so much pressure to open stores and lack of trained staff, our operations leadership was constrained to move store staff from one store to another. This led to a significant increase in pilferage of stocks since store staff realized very quickly that no one was watching. Stocks would disappear and neither store management nor operations leadership would be willing to take responsibility.

·     Projects: Though the company had a standard store opening checklist which outlined every single step that had to be completed before a store was opened, in the hurry to open the store, the check lists were ignored. Non completion of the store opening checklist as a result of sub optimal opening was another casualty.

·       Contractors: Since the contractors who were building the stores were under pressure, they started using substandard material and this resulted in entire shelves coming off the walls where they were grouted after the store had opened, resulting in a loss of stocks. If standard operating procedures that were well documented were followed the contractors would have been managed better.

·       People: Our need for people was large since we were opening more than five stores a month. We had walk in interviews going on in our head office and our process of putting every new entrant through one week of training was a failure. Instead of training people, we started hiring and asking them to report at a store the following morning. Our customer service suffered and we started to get negative customer feedback.

·       Technology: While we had a robust system to manage our stores, we realized that some of our hardware had started giving trouble and therefore computer bills could not be issued. Some stores started to use manual bill books and these manual bills were not regularized on a daily basis. This resulted in lost sales and lost cash because if a manual bill book disappears, there is no way to track what has happened to the stock till it physically counted.   

·       Cash: Reconciliation of cash collections on a daily basis which is sacrosanct for any retail company was stopped because it was seen as too cumbersome. When this was brought to light by the auditors, the finance department of the company had to go through very intensive work for over one month to get this reconciliation done prior to our audit.

·    Stocks: While my colleagues in the loss prevention department were mandated to conduct stock checks every quarter in every store, this schedule fell by the way side and physical stock checks were not carried out as per the agreed procedure. When we did conduct the stock taking exercise, we found large quantities of stocks were missing. The staff who should have been held responsible for these stocks at the stores had resigned and gone. The company, once again, had to absorb a loss that it should not have borne had systems been implemented correctly.

It is quite clear that unless systems are followed by a startup from the very beginning, losses will mount from all sides before the promoter of the company can get his act together.

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The author is the founder Chairman of Guardian Pharmacies and the author of the best-selling books, Reboot. Reinvent. Rewire: Managing Retirement in the 21st Century; The Corner Office; An Eye for an Eye and The Buck Stops Here - Learnings of a #Startup Entrepreneur. 

Twitter: @gargashutosh

Instagram: ashutoshgarg56

Blog: ashutoshgargin.wordpress.com

https://inc42.com/resources/startup-operating-systems-crumble-pressure/