At Matrix she is the acting GC filling in for the duration of the maternity leave of its existing GC.

She said that her portfolio may increase going forward, though there was an upper limit. “Conservatively, I think it would be possible to advise five to six funds at one go, once you get a sense of their investment strategy and deal terms.”

Rajaram, who in May 2013 left more than six years at law firms Nishith Desai Associates and AZB & Partners behind to join UTV-group founder Ronnie Screwvala’s fund Unilazer Ventures, calls her current role of “independent general counsel”, a “new role in the funds industry”, she said last week.

She commented: “I'm looking at creating a hybrid role that combines the services of a law firm and a GC role for funds particularly in complex transactions. I feel this will free up the investment team’s time that can be more efficiently used in identifying deals and advising portfolios as opposed to reviewing and negotiating transaction documents.”

What is an independent GC

Rajaram explained that the benefit of having one counsel, such as her, representing various existing investors in a deal, instead of various GCs representing just the one investor under whose employment they respectively are, is an efficient way to handle negotiations during the “nuanced” later stages of an investment.

“Having one counsel represent existing investors becomes very efficient in place of each advisor putting forth suggestions that best serve their client,” she remarked.

“If each investor has its own advisor at the table, negotiations get protracted with no resolution in sight. Too many lawyers can spoil a document and all of that,” she joked.

“I'm very keen to see if its possible to work as an external and independent GC for various funds and change the way deals are negotiated, i.e. from a practical understanding of what is actually required as opposed to going all out to get the best deal on paper through extended negotiations that inadvertently jeopardize the target company's prospects in the process.”

Her new role was very different from a traditional external legal advisory practice in that as a GC she would be more involved in the commercials and the decision making process, and also be more accountable. It also meant that there were no overheads at all to her practice, since she worked out of funds’ offices and used their facilities and infrastructure.

Editor’s note: We had interviewed Rajaram around two months ago, before her move to go independent. The interview was not published for several reasons and we were overtaken by events. Below the fascinating, lightly edited interview on her time at Unilazer and the VC-legal industry.

Her time at Unilazer

Rajaram joined the fund to oversee “the usual venture capital (VC) investments at Unilazer and at Swades – Ronnie’s not-for-profit organisation”, she explained two months ago, before going independent.

A 2007 alumnus from the Ambedkar Law College in Chennai, she had stints with Nishith Desai Associates and with AZB & Partners before Unilazer. She was experienced in private equity, M&A and tax.”[My] tendency was to stick to that,” she commented.

“But while you do want to get more skilled in something, after a point it tends to get repetitive.”

Over time Scewvala resumed entrepreneurship and, in addition to VC investments, there were five new ventures for Rajaram to oversee at Unilazer – spanning sports, media, education, digital content and film.

It was never the company’s intention to hire separate legal teams for separate entities such as movies or online education she said, explaining, that it was difficult to find “the right kind of people”. “Some days it would be overwhelming, [as it can be for] someone from a corporate background to suddenly figure out media and all the other fields [Unilazer does business in].”

In a big private equity fund the in-house role could stagnate if it was focussed exclusively on venture capital investments, she said. “While I still love the VC investments, it has been interesting to see how it is to execute an idea. The approach is not so by the book. It is easier to appreciate the practical side of it. [One gets to] understand the life span of a business.”

The practical side

“So many times I get asked that ‘doesn’t it get very repetitive?’ But I’ve found that no two deals have been the same. The nature of rights maybe uniform but negotiations is different. Each founder views rights in a different way. That’s where using a law firm gets very exorbitant. Because they charge based on time spent and sometimes negotiations take time.”

So many firms are preferring their own in house counsel on the timing and cost perspective. Also, how to mitigate, the in house counsel knows better. Though we do reach out to law firms for complicated new issues.

She said that she was part of the AZB & Partners team assisting on Unilazer’s early stage investments in Lenskart and Zivame as a series B investor, and by the end of those deals she moved in house with Unilazer. This afforded her a hands-on experience in fully understanding the business of which she was earlier exclusively restricted to helping with legal due diligence and reconciling all the legal rights for.

Rajaram said that the negotiations that go on between a start-up and its investors are handled better by the in-house legal team due to the triangular support it gets, of a financial advisor, a business advisor and a law firm, enabling the in house team to understand the company across the table much more.

“In a law firm you negotiate the same set of rights and take whatever you can get and let go of what you can’t, eventually. [In-house], we look at so much more on the business side of things.”

Rajaram’s learning from business negotiations has also been full of variety. “Depending on the stage of investment, the speed of negotiations is different. Series B investors coming in later in a follow up round [present an] even more interesting [challenge] - you have to reconcile rights between not just you and the founder but also at all other various levels, such as the founder and the other investors, rights between the other investors themselves, etc. The thresholds on which they have to act, the timelines. When you’ve already invested in a company for three to four years you can keep relaxing things and [negotiations] are a lot faster.”

The investment deal

The anatomy of a typical investment deal begins with a “term sheet” – a five to six-page brief setting out the key rights the investor is looking at having in the investment and what the investor is looking at getting out of the investment. “You want to get it out before you get stuck in due diligence, the valuation, etc.”

Unilazer outsources the due diligence, hiring one firm for the financial diligence and one firm for the legal.

Then, with law firms, Rajaram also works on drafting the investment agreement. This agreement, she said, is standardised over time by the in house legal team – “The way private equity and venture capital investment area has evolved, most [start-up] founders are familiar with what will go on and mostly the process is smooth.”

“[Start-up] founders usually don’t like it if [investors force their requirements] down their throat. Everyone is moving away from that style. But at the same time founders do recognise that if you’re an investor there are certain things that you need, and going in with that perspective most of our deals have gone ahead fairly fast. We do the documentation and then we negotiate it.”

Negotiations

Negotiations are happening a lot more peacefully than they used to earlier, she said. “There was this attitude of scoring a lot more brownie points, but again the useful thing is that it cannot be one-sided. People are reaching middle ground much faster and the tone has got a lot more sophisticated. Earlier there used to be a lot more drama but now [the investor and the start up] are not really adversaries negotiating against each other.”

“Some rights may be in conflict but the way people’s attitudes are [now] is much more mature. They are not trying to push for every single point and that is quite refreshing,” noted Rajaram though cautioning that the picture may be a bit different for Unilazer since it is one of the more established funds.

“Ronnie Screwvala approaches it very interestingly. One can see things from the [start up] founders’ perspective. When you’re part of a very large fund then things are difficult since you can’t get internal approval for certain things. It’s a very big process that you’ll have to follow. That’s not the case here.”

“Law firms spend a lot of time negotiating indemnities. Here you have to understand the practical reality that you can’t really get indemnity from someone so young such as an IIT-graduate founder. The indemnity at the end of the day is something given on paper only. So you move to a cap of a more reasonable amount.”

Unilazer legal

Rajaram, as general counsel, comprised the full body of the Unilazer legal team until around eight months ago when a fresh law graduate joined the team. In January 2016, a 2007 law graduate became the third member of Rajaram’s team.

On external advice Screwvala uses AZB and P&C Legal for the due diligence and NDA on structuring and internal constitution, in addition to diligence in, for example, the healthcare sector.

Unilazer hads also used BMR Legal recently, said Rajaram.

She explained that the due diligence aspect of investment deals was fast getting standardised and if the fund is in the later stages of its investments on start ups then it can dispense with most of the external advisor’s role.

The expensive part of external legal advice is the documentation but there is also the one per cent chance of raking up an expensive bill due to the uncertainty of the time taken in negotiating a term sheet in which “the devil is in the detail”, said Rajaram. “You’re trying to reach a resolution and there is no really telling how much your fees can go for.”

Sometimes even the legal due diligence can be an expensive affair. “When a company has finished maybe two years of existence the founders are so focussed on the business that legal diligence is not on their priority.”

On growth

Smaller teams are much more efficient thus offering their members a chance to grow more, she said. “The best thing that I learnt from a law firm is that they handle quite a bit of transactions and it feels more efficient. [In large teams] sometimes you’re not really sure if everyone is occupied. [For example] many of us in [AZB’s] corporate [practice] also knew tax.”

But unlike joining very late stage companies where she would have only had the chance to learn from pre-established structures, at Unilazer Rajaram said she had to build everything from the ground up. “One gets the time to understand what would be the legal issues involved [and to] ask the right questions. A lot of learning will come from some amount of trial and error because there are so many new companies, so many different things [the founder is venturing into].”

Indian regulatory trappings

Rajaram said that the investment space in India could do with better regulatory framework on pricing, taxation and paperwork.

Stakeholders are often boxed into doing deals only at “Fair Market Value”, and this skews the commercials of the transaction, she said.

The Reserve Bank of India (RBI) mandates that non residents investing in India, cannot pay less than the fair market value (FMV) of securities of an Indian company. This complicates pricing when investments have a primary as well as secondary component – where an investor is doing a primary infusion into the company at FMV but also cashing-out some of the existing shareholders at a discounted price.

Additionally, under Indian tax laws, if any company issues shares at a premium to the FMV, then the company has to pay tax on the premium. While if a shareholder receives shares below FMV, then the shareholder has to pay tax on the difference between FMV and the price it paid.

Paperwork

“Earlier, fundraising entailed straight forward filings with the Registrar of Companies (RoC) and the bank in terms of reporting requirements for funds received from outside India. Under the new companies act, there are several corporate actions to be taken as well as lengthy documents to be filed with the RoC,” she notes.

As an example, a private company looking to raise funds, has to issue a detailed prospectus with several disclosures as prescribed under law.

“However, the on the ground reality of how these deals work where investors do a detailed diligence on the company, execute long form agreements where representations, warranties and indemnities as well as disclosures are negotiated at length, makes this legally mandated requirement of issuing a prospectus to a potential investor fairly redundant. Only listed companies looking at raising funds from the market should be required to make such disclosures as doing a diligence on a listed company is limited given insider trading regulations that restrict access to such information,” she explained.

It would bode well for the government’s “Start-up India mission” she said, to do away with some of these regulatory trappings and make it more conducive for start-ups to commence business as well as raise funds.