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India: deciphering investing jargon

As a transplanted investment professional I had to learn a lot when I moved to India from the United States 18 months ago.   Over time, I have come to recognize critical colloquialisms that makes business conversations tick.

On a lighter note today,  I thought I would produce my “top ten phrases used in business English” in investment situations and what they mean (overtly or implicitly).

  • “Promoter” =  a founding CEO sometimes, but more often than not, a wealthy businessman who could afford to launch a new business and fund its early growth and a crew of professional managers who work for cash rather than founders’ equity.  All valuation and terms discussions will be convened with the Promoter, but the business plan will be articulated by the professional CEO equivalent.
  • “ESOP” = Employee Stock Option Pool, which compared to similar pools in the West is more like a “puddle of stock.”   Option pools rarely exceed single digit percentages, but this does not necessarily mean founders are hoarding stock.  Employees do not seem very motivated by options either so awards tend to be incidental beyond the first level of management.
  • “Sourcing” =  waiting for bankers to call you with investment proposals.   There are several folks (including myself) who build proprietary deal flow, but more often than not, as soon as a company is serious about the deal,  an intermediary will be invited to help the process along.
  • “Leverage demographic dividend” = a much touted claim that India has an  endless supply of young and talented professionals to staff a growing business.  The reality is that most fast growing businesses are starved of good talent beyond one or two levels.  Training and high-attrition at lower levels are par for the course, but talent continues to hold many good businesses back.
  • Valuation” = discussions that converge on a basket of public listed companies (usually listed on the local Indian exchanges).  What is peculiar is that valuations are based on forward multiples of management’s (universally tagged as conservative) projections for the next twelve months, and are aspirationally at a premium to listed comparables  in a bull market.   Of course deals get done at the right prices but periodically, given the amount of money waiting to be deployed here, the Indian private markets get frothy.
  • “Investor friendly terms” = a term sheet that includes a put on the promoter and the company guaranteeing an IRR return in case an IPO exit does not materialize.  Contrast this with  “promoter friendly terms” where the put is limited to the company alone or “company friendly terms” where there is no put at all.
  • “Exit” = an IPO or the aforementioned “put.”  Strategic sales and exits to other financial investors are possible but improbable.
  • “CDA” = a confidentiality agreement that, unlike VCs in the US, investors here are keen to sign with investment bankers and promoters.   This despite the fact that contracts in India are typically hard to enforce and litigation backlogs are measured in years and decades.
  • “Jugaadi” : a catch-all term that encapsulates all the passion and energies a promoter brings to a business, to make things happen in an environment where markets, bureaucracy and regulators are best described as volatile.  A lot of it is like making sausage: as an investor it is too hard for you to understand and it is best to leave the promoter alone to his jugaad and wait for results.
  • “Taking  a call” = an investment decision you are urged to take in the absence of enough information and which usually involves the transfer of millions of American dollars.

I am sure there are many more examples that others who specialize in cross-border investing here may have noticed but the ones listed above are my favorites.

Reminder, this list is supposed to be in jest and dwells in exaggeration.  Along those lines, more than one entrepreneur has suggested to me that:

  • “VC/PE Investor” = former commercial banker who continues to have the  risk appetite of a secured lender with returns expectations of an equity investor.
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