HAR VARD BUSI NESSSC H OOL

9-812-168
REV: OCTOBER 15, 2012

RAMANA NANDA

H-Soft Mumbai

Siddharth Kapoor, the Founder and CEO of H-Soft Mumbai refiected on his meetings as he
walked out of VC Ventures' offices in Mumbai. It was 27th September, 2010, and after a few months
of intensely pitching his startup to several different investors, he finally had a term sheet in hand (see
Exhibit 1 for details).

Kapoor knew that this was no small feat, given the dearth of early stage venture capital in India.
Getting to this point had not been easy. Kapoor had decided to branch out from his family business
that owned and managed a chain nursing homes acrGSS India, to found H-Soft. His aim was to
provide turnkey software solutions that would improve the efficiency and productivity of hospitals
and clinics across India's rapidly growing healthcare market. Although he had seeded the venture
with his personal savings, and the SaaS business model had attractive cash flows, Kapoor knew that
in order to expand aggressively, he would need external equity capital.
With increasing disposable income in a rapidly growing middle class, improving healthcare
insurance penetration and life-style related iealth issues; the healthcare sector in India was projected
to double in size, to USD 100 billion by 2015. With poor penetration of hospitals in Tier II and Tier II
cities, several analysts had projected infrastructure investment in the sector to grow rapidly in the
next several years. Kapoor had already made a sale to a well-respected hospital chain and felt that as
more of the healthcare providers began to adopt software solutions; H-Soft could make a sizeable
turnover in just a (ew years. Kapoor's business plan projected sales for H-Soft in 2015 would be as
high as Rs. 50 crore. With current Price / Sales ratios for comparable firms based on public company
multiples and recent acquisitions at 5X, this suggested a comparably rich valuation for ABC ventures
if it could meet its growth and revenue targets.
Although he knew he would be diluting his stake in the business considerably by raising venture
capital, he felt that the opportunity was so large that even a small share of the firm, if successful,
would far exceed what he could develop through growth from internal cash flows. In addition, the
scale economies inlherent in a software business, combined with strong first mover advantages meant
that growing fast was critical to achieving the economic benefits of such a business. In effect, he felt
that speed trumped dilution for this business opportunity.
VC Ventures was just one of many investors Kapoor had been met with to discuss financing
options for HSoft. Although most of the investors had expressed interest in the idea, he had yet to
progress to the point where they were willing to discuss the terms of a possible financing. Several of
 812-168 H-Soft Mumbai

the investors liked the idea but were concerned about Kapoor's ability to execute towards those
aggressive targets.
Finally, after a number of initial meetings, Vikram Sharma, the Managing Director at VC Ventures
had asked Kapoor to come pitch his idea to the partnership earlier that day. Kapoor felt that his
presentation and meetings had gone well, but he was extremely surprised when Sharma requested
him to wait a short while, and came back with a term sheet.
Despite this huge milestone, Kapoor knew it was only the start of a long process of raising money.
He only had three days to get back to Sharma and indicate whether he would like to initiate the
diligence process (that could eventually lead to the investment). Whiie he was familiar with some of
the terms venture capital investors put into their contracts, many others were completely alien to
him. Which terms were important? Which ones should he focus on negotiating? He also knew that
money was only part of what the venture capital investors brought to the table. Was VC Ventures the
D N
right partner o Co
for his business? Kapoor knew t heohad a busy fewpdays ahead of him as he thought
through all of these questions before getting back to Vikram Sharma.

2
H-Soft Mumbai
P o s

Exhibit 1 Summary of Terms of Series A Preferred Stock Financing for H-Soft

lssuer: H-Soft Mumbai (the "Company)

Investor: VC Ventures (the "Investor)

Founder: Siddharth Kapoor (the "Founder")

Type of Security: Series A Preferred Stock (the "Preferred Stock").

Valuation: The post money valuation for Series A Round of Funding shall be Rs. 16
crores ("Post Money Valuat on") based on a Rs. 6 crore capital raise and
inclusive of a 10% unallocated post-inoney employee stock option pool (as
outlined in ESOP below).
Terms of Serles APreferred Stock
Dividend Provisions: The Preferred Stock will have an annual per share non-cumulative
dividend of 8% per annum, payable when and if declared by the Board
prior to and in preference to any payment of dividends on Common.

Liquidation Preference: In the event of a iquidation, dissolution or winding-up of the Company or a

Conversion:
Automatic Conversion:
transaction involving the sale of all or substantially all of the assets of the
Company, a inerger a reorganization, or other transaction in which more
than 50% of the outstanding shares or voting power of the Company are
ransfgrred or on an exclusve cablelicensing of all or substantially
vs
all of the Company's intellectual dute athird party (each of which
shall be a "Liquidation Evernt," where the Series A investor exits their entire
shareholding in the company), the proceeds shall be distributed to the
stockholders as follows:
The investor will be entitled to receive, in preference to the other
shareholders of the Company, 1.0 times the purchase price paid for the
Series A Preferred Stock. Thereafter, the Investor shall participate pro rata
along with the other shareholders of the Company in any further
distributions or pay-outs in connection with such Liquidation Event.
The holders of Preferred Stock shall have the right to convert any or all
shares of Preferred Stock, at the option of the holder, at any time, into
shares of Common Stock. One share of Preferred Stock shall initially be
convertible into one share of Common Stock (see anti-dilution provisions).
The Preferred Stock shall automatically be converted into Common Stock
at the then-applicable conversion rate, (a) in the event of the closing of an
underwritten initial public offering with aggregate offering proceeds of at
least Rs. 50 crores and a price to the public of at least 5 times the
Preferred Stock initial purchase price as adjusted for stock splits,
dividends,, recapitalizations and the lIke (the "Qualified IPO"), or (b) in the
event that the holders of at least a majority of the outstanding Preferred
Stock consent to such conversion.

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 812-168 H-Soft Mumbai

Anti-dilution Provisions:
Voting Rights:
shares of Preferred Stock.
The conversion price of the Preferred Stock shall be subject to adjustment
according to a broad based weighted-average anti-dilution formula in the
event of the sale of the Company's securities at a price less than the
current conversion price, subject to standard carve outs. In addition, there
will be proportional adjustments for stock spiits, stock dividends,
recapitalizations and the like. Securities issued pursuant to a Company
stock option plan shall not trigger anti-dilution protection. Holders of a
majority of the Preferred Stock may elect to waive on behalf of all holders
of Prelered Stock the foregoing anti-dilution provisions.
The holders of Preferred Stock will vote together with Common Stock and
Provisions" or ae t e a y provided herein under
not as a separate class except as
Protective required by law. Each share of
Preferred Stock shall have a number of votes equal to the number of
shares of Common Stock then issuable upon the conversion of such

Protective Provisions: The consent of holders of a majority of Preferred Stock, voting as a

separate class, shall be required to:
a) change the rights and lerms of the Preferred Stock;
b) issue any security either senior to or on a parity with the Preferred Stock
c) any items adversely affecting the rights and privileges of the Investors
d) allow a transter of stock by tne Founders
e) declare dividends and redeem or buy back shares
f) incur any material indebtedness
g) allow related party transactions
h) amend any option plan or bylaws of the Corporation
) change the number of directors
) allow tte liquidation, recapitalization or reorganization of the Company
k) any significant sale of assets of the company, including any sale of
Intellectual property
)sell or merge the Company
m) change in senior management (CEO and CFO) of the Company
n) appoint statutory auditors to the company
o) amendments to Memorandum of Association and Articles of Association
of the Company

Terms of Investor Rights Agreement

H-Soft Mumbai 832-168

Board of Directors:
The Board of Directors willconsist of 5 members, to be elected as follows:
CEO of the Company,
One representative of Common,
One representative of VC Ventures, and
Two independent outside director who shall be mutually acceptable to
Common shareholders and to majority of Preferred Investors.
The board of directors willmeet quarterly in Murnbai and will have a
monthly board calI. Company shal! reimburse reasonable board travel
expenses.

Right of First Refusal If the Founder(s) receives an ofer to sell all or any portion of his/her
And Co-Sale Agreement: shares of capital stock in the Company, both the Company (first) and the
holders of Preferred Stock (second) shall have the right of first refusal to
purchase such shares on the terms ot the offer. If the Company and
Preferred Shareholders decline this option, the Founder may not accept
such an offer unless a similar offer on the same terms is made pro rata for
the securities held by the holders of Preferred Stock. This shall not apply to
transfer of stock by Founder(s) to their trust or family members.
Drag Along Right: At any time after 60 months from the date of closing, the Investor shall
have the right to transter their Preferred Stock to any other person. In
relation to such proposed transfer, the lInvestors shall be entitled to require
the Founder to transfer all or some (to be decided at the sole discretion of
the Investor) of the equity securities held by the Founder to such other
person at the same price per share and on the same terms and conditions
applicable to the Investor.
Eventual Exit: The Company agrees to work with the Investor towards creating an exit for
the Investor and all shareholders via a Qualified Public Offering within 5
years of Closing. The Investor will be entitled, but not required, to offer up
to 50% of its shares as a part of such Qualified Public Offering.
In addition, the Investor agrees that if a Qualified Public offering is not
completed within 5 years, then the Founders will work with the Investor to
secure the Investor an acceptable exit including (i) through sale of the
Company (iü) a round of equity induction in the Company which shall
include an exit right for the lnvestor for any or all the Preferred Stock held
by the Investor. If a Qualified Public Offering is not completed nor is the
Investor offered an acceptable exit within 5 years, then the Investor shall
have a Put Option for its shares. This Put Option will require the Company
to purchase the Investor's shares at market value. The Key Founders and
Investor agree that the specifics of this Put Option will be further discussed
by respective counsels and finalized prior to Closing.
Registration Rights: Subject to applicable law, the Investor shall be entitled to customary
registration rights, including demand registration rights and unlimited
piggy-back registration rights in connection with a listing of the Company's
shares on any overseas stock exchange, subject to the approval of the
majority of Preferred stock holders.

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 812-168 H-Soft Mumbai

Keyman and D&O: Company agrees to have in place suitable key man insurance tor
Founders and D&0 liability insurance for Oficers and Directors at
coverage levels deemed acceptable by VC Ventures.

Other Matters
Employee Common Stock Unless otherwise approved by the Board, Employee Common Stock
Options Vesting Options shall vest based on an ESOP scheme approved by the Board of
the Company and the Investors. The Cormpany shall have a repurchase
option on unvested shares at cost
Founders Common Stock Unless otherwise approved by the Board, Founders Common Stock
Options Vesting Options shall vest as follows: 25% will vest at the end of one year; the
remainder shall vest six monthly over the following 36 months. The
Company shall have the right to repurchase any unvested Common Stock
at cost upon termination of the Founder's employment with the Company
ESOP: Independent of the amount raised, the company will create an unallocated
Employee Stock Option pool available for grant to 10.0% of the
outstanding shares post-closing of the Investment. All equity or option
grants to allemployees, consultants and directors shall be subject to
minimum 4 year vesting and other typical restrictions with a twelve month
clitf upon initial hiring.
Closing: Expected on or about 15th November 2010.
Conditions Precedent: The Company wil! satisty the following conditions before closing:
Prior to closing, the Company will enter into Proprietary Information
Agreements with all employees and contractors. The Proprietary
information Agreements will contain provisions satisfactory to the Investors
with respect to confidentiality, corporate ownership of inventions and
innovations during employment, and non-competition and non-solicitation
of employees and customers' covenants during and after employment.
Completion of reference checks, legal and business due diligence to the
satistaction of the Investors.
Structuring of the Investment to satistaction of Investors from a taxation
and regulatory perspective.
Review of any employment agreements that may exist to satisfaction of
Investors.
No material adverse change in the Company's business condition or
prospects from what is currently reported.
Mutual agreement to specific registration rights by Investors and the
Company.

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H-Soft Mumbai 812-168

Governing Law and Dispute This Term Sheet and the Transaction Documents shal! be governed by
Resolution Indian law. All disputes in relation hereto shall be subject to resolution
through arbitration under the Singapore International Arbitration Council
(SIAC). There shall be one arbitrator nominated in accordance with the
rules of the SIAC whose appointment shali be agreed by the Parties All
hearings shall be held in Mumbai and the language of the arbitration shall
be in English. The arbitration proceedings shal! be governed by the rules of
the SIAC. For the avoidance of doubt, all of the practices and
documentation of the Transaction will conform to applicable and relevant,
local and federal laws.

Fees and Expenses: Upon successful completion of the Investment, the Company will pay
reasonable fees and expenses of a counsel for the Investors, financial and
background due diligence and travei expenses up to a maximum of Rs
10,00,000.

Non-Binding: Except for the Confidentiality and Exclusivity provisions, and Fees and
Expenses, which are binding agreements among the undersigned, the
undersigned acknowiedges that this term sheet does not constitute a
binding agreernent.
Expiration: If not accepled by the Company, the offer contained in this term sheet will
expire on 30th September, 2010.
No Shop: From the signing date hereof until the earlier of () the Closing or (i) written
notification by VC Ventures that it does not intend to proceed with the
financing, the Company and the Founder agree that they shall not solicit,
encourage others to solicit, encourage or accept any offers for the
purchase or acquisition of any capital stock of the Company, of all or any
substantial part of the assets of the Company, or proposals for any merger
or consolidation involving the Company, and they shall not negotiate with
or enter into any agreement or understanding with any other person with
respect to any such transacion.

Agreed and accepted:

By: Date:
Siddhartth Kapoor, CEO

VC Ventures

By Date:
Vikram Sharma, General Partner

Source: Case writer's analysis based on several proprietary term sheets.