NISM Series XIX-D · Chapter 10: Investment Process and Governance of Funds

L1 · Foundation

The Investment Process - From Teaser to Definitive Agreement

How an AIF actually finds and closes a deal - deal sourcing, initial assessment and the teaser, business due diligence, negotiations, the Preliminary Investment Memorandum and term sheet, thematic investing, the three-part Investor Due Diligence, and the definitive agreements that bind it all.

27 min read · Worth 10% of the paper · Written from pages 221–254 of the official NISM workbook · Updated 18 September 2026

The Investment Process

10.1 Deal sourcing - why it is hard

Category I and Category II AIFs invest in unlisted companies that show promise for growth and value creation. The workbook is candid that finding them is an arduous task. Two reasons:

These companies are not listed on the stock market, so their presence is somewhat invisible.
Their business and financial details are not available in the public domain as much as for listed companies.

Contrast Category III AIFs. They essentially invest in listed securities and manage money of High Net-worth Individuals or Institutions - corporate institutions with a pre-defined methodology for screening a potential investment. For them, the information is simply there.

What the manager must build. AIF managers need the expertise to identify companies that can give above-average returns. They must then zero in on the exact target investment which fits into their investment scheme and return requirements. To do this they use:

their extensive network of business and professional contacts.
investment bankers, consulting firms, deal scouts, investment platforms.
practitioners such as auditors and legal firms.
other AIF fund managers.

The routes a deal may come through:

internal analysis using a research support team.
networking.
appointing deal scouts.
co-investing.
visits to companies.
company screens through databases for specific criteria.
industry conferences.
conversations with industry consultants and experts.

Why this matters commercially: one of the key attributes of a successful AIF manager is to be able to showcase an impressive pipeline of deals to back up their pitch for raising capital commitments from investors. The pipeline is not just how the fund invests - it is how the fund raises.

10.1.1 Initial assessment

What is being assessed: two things, together.

The potential business opportunity presented by the company.
The credentials of the key management team - importantly the founders - and whether their vision, competence and drive match the requirements to convert that opportunity into value creation.

The screening filter. Most fund managers have an investment approach. Under it they screen companies against pre-defined criteria or filters.

The workbook's example is ABC Category II AIF. It invests only in FinTech start-ups that pass three filters:

they have previously raised funds from a Venture Capital Fund.
they generate revenues of at least Rs 100 crore yearly.
their management team has minimum 15 years of experience in Financial Services.

Such an approach limits the investment options and serves as an initial assessment on hundreds of companies approaching them for funding.

The teaser and the NDA

The teaser (or flier) is a brief 1 to 3 page summary of the company and the opportunity. The investment bankers appointed by the investee company send it to prospective funds. They first pick a list of fund managers based on the business sector and investment criteria of the transaction.

What the fund does with it: decides whether the proposal has a preliminary fit into their investment philosophy.

If the teaser is interesting, the investment team will negotiate and sign a Non-Disclosure Agreement. The team is investment managers supported by principals, associates and the research team. Signing the NDA lets them receive the Confidential Information Memorandum (CIM or IM) prepared by the investment bankers.

In a proprietary-sourced opportunity - where the fund found the company itself rather than receiving a teaser - the team signs an NDA directly with the target company. The NDA is especially important for sharing technical information and is used extensively as a matter of convention.

Matching the strategy to the investors

Screening must follow the stated investment strategy in the PPM. But the workbook adds a subtlety: the investment strategy can vary based on the marquee investors in the fund. Sovereign Wealth Funds and Family Offices have a different risk-return objective compared with high net-worth individuals.

And the manager must consider all the investment constraints too:

taxation norms applicable to its investors.
any liquidity concerns or funding requirements.
regulations and compliances applicable.
the time horizon of the investment.
other unique circumstances or macro-economic factors.

10.1.2 Business due diligence

At this stage the investment team performs initial business and management due diligence. This includes:

research on the industry.
talking to advisors about the current state of the industry and the players in it.
building and enhancing a preliminary financial model using the management's projections, to understand the potential returns.

Meetings with the investment bank are held to hear their thoughts on financing requirements, type of financing and probable deal structure.

The Management Presentation. At an appropriate stage the bankers arrange meetings between the investment team and the company's key management - known as the Management Presentation or Investor Pitch. Management presents an overview while the deal teams on both sides engage in technical discussions covering the business case, the numbers presented, current performance and all associated aspects.

Then to the Investment Committee. After reviewing the presentation, the investment team prepares a brief 2 to 3 page investment proposal and presents it to the Investment Committee. The meeting may be either:

to alert the Committee to the potential deal, or
to commence the first stage of a formal approval process, where the team seeks a "go-ahead" to negotiate the deal.

A practical detail: if processing the deal requires out-of-pocket expenditure, a "cost-cover" may also be approved by the Committee.

10.1.3 Negotiations by the investment manager

The purpose of this stage is a meeting of minds on the future roadmap. Further meetings refine the business plan presented by the management and fine-tune the investment and roll-out plan, so that there is agreement on what happens after the financing needs are met.

Why it matters so much: the process culminates in an agreement on the final business plan that becomes the basis of the investment and the key deliverables from the company. A deal without an agreed plan has no yardstick to measure the company against later.

In parallel, the contours of the deal are discussed with the investment bankers and the finance and regulatory teams of the company:

the broad structure of the financing - debt, equity or mezzanine.
the appropriate regulatory framework, examined at a broad level.
and crucially, the manager should get a feel of the company's valuation expectations and to what extent they are negotiable.

10.1.4 Preliminary Investment Memorandum and term sheet

The PIM. Before executing the term sheet, a Preliminary Investment Memorandum may be presented to the Investment Committee. Whether this happens depends on the manager's internal protocols. The PIM details the proposed investment and deal structure. Its aim is to get authorisation to sign the term sheet.

The term sheet itself. The team presents the company with a non-binding Letter of Intent, also called the term sheet, sometimes referred to as the Summary of Principal Terms (SOPT). It details:

the proposed transaction.
the investment amount - often a valuation range is given, rather than a specified amount.
a proposed capital structure post-acquisition.
board seat.
key investor rights and management terms.
the exclusivity period.
conditions precedent to investment and other residual matters.

The three facts about a term sheet that are always tested:

It is non-binding on both parties and does not provide for any contractual rights whatsoever.
It has a validity period within which the parties are expected to complete the transaction and the due diligence process - usually extendable by mutual consent.
It is entered into by the manager with a potential investee company - not between fund and manager, not between sponsor and investor.

What it achieves despite being non-binding:

It defines the modalities, avoiding vagueness and injecting precision into the transaction.
It establishes commitment from both sides through the exclusivity.
So the transaction can be concluded expeditiously in the mutual interest.

10.1.5 Thematic investing

What it is: an investing method where the manager identifies significant investment opportunities or invests in popular trends without extensive research on individual stocks.

The workbook's example. Electric vehicles are developing, and the government is boosting the industry. A manager who believes EVs will grow strongly can invest in a theme designed explicitly with that view. The money goes into start-ups, early-stage ventures and even large companies working directly or indirectly in the EV industry. Think EV trucks, EV bikes, charging stations, battery swapping and related areas.

Why managers use it:

Thematic investing is about emerging opportunities and structural shifts that can offer better returns.
It ensures investors have efficient equity portfolios and lets them invest in different and specialised sectors with high growth potential.
After selecting a theme, the manager can research the relative returns from the industry compared with other asset classes, ensuring the fund is aiming at returns above its opportunity cost.

The diversification argument. By using thematic investing, managers can manage portfolio risk and diversify across different industry segments during different economic cycles. The workbook's illustration: COVID-19 led to the growth of tech-enabled start-ups, especially in Agri-Tech, EdTech, FinTech, Clean Energy and Robotics. These industries are not highly correlated, and all offer growth potential. So the manager can allocate the portfolio so that companies across all the selected industries can be funded. The weights depend on the risk-return objective of the AIF.

And a wider benefit: thematic investing benefits not only the investors in the fund but also the economic development of a nation, through growth in emerging technologies.

10.2 Investor Due Diligence (IDD)

Definition: Investor Due Diligence - also called a due diligence review or DDR - is the due diligence performed by the AIF's investment manager on the potential investee company before firming up the investment.

The timing rule, which is examinable: the due diligence process does not commence unless the term sheet is executed by both parties.

What it consists of: a comprehensive examination into the facts, representations and affairs of the company by the AIF investment manager, so as to take an informed investment decision.

The three components

Component	Who does it
(a) Business, Commercial and Technical DDR	Normally the investment team itself, due to in-house expertise and industry network. They may engage technical experts to validate findings or evaluate very specialised technology
(b) Financial DDR	Usually an accounting firm or an investment bank engaged by the investor
(c) Legal DDR	Normally a law firm practising in corporate law and transaction matters

The virtual data room

The investee company begins the process by providing detailed confidential information in a virtual data room. Typical records include:

Type	Records
Legal and governance	constitutional documents such as memorandum and articles; board minutes and reports; statutory filings
Accounts and tax	books of account; tax returns; invoices; purchase orders; detailed segment financial information; historical audited financials
People	payroll statements; employee lists and employment agreements
Assets	owned and leased property agreements; intellectual property documentation

The IDD teams draw up a schedule in consultation with the company's officials. Follow-up due diligence calls are held through the supervision of the investment bankers, with specific members of the executive and non-executive management team. Based on the data room files, the deal team starts brainstorming the critical issues. These often require fine-tuning of the deal structure or conditions precedent.

What Financial DDR covers

Verification of books of account, financial statements and business transactions, in order to determine:

the true and fair view of the accounts and financial statements.
the accuracy of the oral or written representations made by the company in its IM and other literature.
material financial information that is not disclosed and which may bear on the investment decision or the agreed valuation.

Scope: it almost amounts to a financial review of the company and is usually carried out for the past three financial years at least. In many cases the scope includes vetting the financial forecast represented in the IM and the consequent financial milestones.

Tax: Financial DDR also covers tax matters, both direct and indirect. The team examines tax records, filings and assessments and determines whether there are potential threats that could lead to impending or future tax demands, including legal proceedings.

What Legal DDR covers

the legal aspects of the company's business.
its Intellectual Property Rights protection.
its contractual relationships with third parties.
material contracts and agreements and their legal implications.
outstanding litigation, if any, and its possible outcomes.
statutory compliance under various laws and defaults, if any.

Note: DDR relating to compliance aspects may be covered under Financial DDR or conducted by a practising company secretary.

Who sees the report

The IDD results in the investment manager being presented with confidential reports by the agency conducting the DDR. And then the rule that matters:

A copy of the DDR report is generally NOT made available to the company. Where necessary, an extract may be sent to the company for suitable clarifications or explanations. Sometimes the manager prepares a separate observation list and sends it to the company for responses and discussions.

What happens next - the model and the renegotiation

Based on the due diligence report, the team refines the financial model using forecast assumptions that are more realistic in the light of IDD findings. The model now presents a detailed revenue and cost breakdown based on specific drivers. The drivers include price, volume, raw material costs, number of branches, number of customers, renewal rates, and fixed versus variable cost structure. Together they form one model describing expected financial performance in great detail.

This gives the manager a complete idea of how to fix key deliverables on the investee company, how to drive deal performance and maximise potential returns.

And often it triggers renegotiation. This could lead to renegotiations to modify and arrive at the final term sheet, involving:

revision in valuation.
revision of disclosure statements.
strengthening of the representations and warranties from the founders, shareholders or key management team.

The final term sheet, as executed once again between the parties, becomes the basis for legal documentation.

10.3 Definitive agreements

Definition: the set of binding agreements signed between the investee company and the investment manager representing the AIF to complete the investment transaction.

The two main contracts

Agreement	Parties	Purpose
Share Subscription / Purchase Agreement	The AIF and the investee company	The main transaction document in equity financing where a new issue of shares is required. It details the terms subject to which the financing is made and provides for rights superior to those of an ordinary investor under the Companies Act as may be required
Shareholders' Agreement	All the existing shareholders of the company and the AIF. The company is made a party if there are clauses that provide privity of contract with the company	An inter-se agreement among shareholders making them agree to the stipulated rights and obligations

Why the Shareholders' Agreement is necessary at all. This is the reasoning to remember. Equity investment conditions specified in the share subscription agreement are binding only on the company and not on its shareholders, since they are not a party to it. A second agreement is needed to bind the shareholders.

The exception: where the promoter owns all the shares or has control over other shareholders, a combined share subscription agreement may be entered into, incorporating the provisions of a shareholders' agreement as well.

What else goes into the Share Subscription Agreement

reconstitution of the board by appointment of the AIF's nominees.
vacation of office by existing directors, if required.
other key appointments.
requirements relating to appointment of a managing director for a renewed term under new terms.
clauses outlining the procedural requirements to implement all of the above.

The multiple-agreement problem

There may already be an existing shareholders' agreement. If so, care must be taken to ensure there are no multiple shareholders' agreements with conflicting provisions. All existing agreements must be amended to bring all shareholders on a common footing. Usually the latest agreement with all shareholder signatures supersedes all previous ones.

Associated documents and the final step

Associated legal documentation may include management contracts with the key management team, additional financing agreements, and undertakings or declarations from founders and principal shareholders.

And the step that makes it all enforceable: the Articles of Association of the investee company are amended to incorporate the provisions of the new shareholders' agreement, so that it is enforceable.

A contractual right that is not written into the AOA can be difficult to enforce against the company. This is the practical reason the AOA amendment is never treated as a formality.

Think of it like this

Deal sourcing is house-hunting where none of the houses have boards

Buying a listed share is like buying a flat in a project with a hoarding, a price list and a sample flat. Sourcing an unlisted deal is like finding a good house in an old locality where nothing is advertised - you work through brokers, the chaiwala, a friend of a cousin, and someone who heard the owner is moving to Bengaluru. That is why AIF managers rely on networks, deal scouts, bankers, auditors and other fund managers rather than a screener.

The teaser is the matrimonial advertisement

A one-page summary with just enough to decide whether to ask for more - and no photograph until both sides agree to exchange details. The teaser is exactly that: one to three pages sent by the company's bankers to a shortlist of funds chosen by sector and investment criteria. Only when the fund is interested does it sign the NDA and receive the full Confidential Information Memorandum.

The screening filter is the marriage bureau's intake form

A bureau that specialises in one community, one profession and one city rejects ninety per cent of enquiries in thirty seconds - not out of arrogance, but because focus is what makes it good at the ten per cent it keeps. ABC Category II AIF investing only in FinTech start-ups with prior VC funding, Rs 100 crore of revenue and 15 years of management experience is doing the same thing: the filter is what makes hundreds of approaches manageable.

A term sheet is the engagement, not the wedding

Both families have agreed in principle, a date has been set, and neither side will now talk to anyone else - that is the exclusivity period. But no legal relationship exists yet, and either side can still walk away. The workbook says it plainly: a term sheet is non-binding on both parties and does not provide for any contractual rights whatsoever. What it does provide is precision and commitment, so the real thing can be concluded quickly.

The virtual data room is the property title search

Before you pay for a plot you ask for the sale deeds, the tax receipts, the encumbrance certificate, the approved plan and the litigation history - and you send your own lawyer, not the seller's. The data room is that same exercise for a company: memorandum and articles, board minutes, books of account, tax returns, payroll, property agreements, IP documentation and audited financials, examined by the buyer's own accountants and lawyers.

The DDR report is the doctor's report to the person who ordered the test

When an employer sends a candidate for a pre-employment medical, the report goes to the employer, not the candidate - though the candidate may be asked to explain a particular finding. The due diligence report works the same way: it is presented confidentially to the investment manager, a copy is generally not made available to the company, and where necessary only an extract is sent back for clarification.

Thematic investing is buying the whole wedding season, not one shop

If you are convinced the wedding season will be big this year, you can back the caterer, the tent supplier, the jeweller and the banquet hall instead of betting everything on one boutique. A manager convinced about electric vehicles funds EV trucks, EV bikes, charging stations and battery swapping. The theme is the conviction; the spread across the value chain is the risk management.

The Shareholders' Agreement is the society bye-laws, the AOA is the registration

A housing society can pass any resolution it likes among the members present, but a rule binds every flat owner only once it is in the registered bye-laws. A share subscription agreement binds the company; a shareholders' agreement binds the shareholders; and the Articles of Association are amended to incorporate the shareholders' agreement so that the whole arrangement is actually enforceable. Skip the last step and you have promises without teeth.

Key terms in this chapter

75 per cent consent rule for external IC members: External Investment Committee members whose names are not disclosed in the PPM or the investor agreement at on-boarding may be appointed only with the consent of at least 75 per cent of investors by value of investment; ex-officio external members such as the Sponsor or Investment Manager Group are exempt.
Affirmative rights: Corporate actions requiring the approval of investors irrespective of their shareholding, so that even an action achievable by an ordinary 51 per cent resolution cannot proceed without their express consent. Viewed as positive control - the power to influence corporate actions.
Automatic conversion clause: A clause requiring convertible debt securities or convertible preference shares to be compulsorily converted into equity on a pre-defined trigger - such as a revenue threshold, a Pre-Series A round, or an IPO. The alternative is an optional conversion right, where the investor may but need not convert.
Chinese walls: Internal information barriers a fund manager establishes to protect confidentiality, listed among the measures to avoid conflicts of interest alongside internal policies, regular training and upskilling, and due skill and care in selecting outsourcing companies.
CIV scheme: A co-investment scheme Category I and II AIFs may launch within the AIF structure, as an alternative to the Co-investment Portfolio Manager route, to offer co-investment to accredited investors in unlisted securities of an investee company in which the AIF scheme is investing or has invested.
Compliance Test Report (CTR): The detailed report prescribed by SEBI, to be filed by the investment manager at the end of every financial year, furnishing details of compliance with the AIF Regulations and the circulars issued thereunder.
Confidential Information Memorandum (CIM or IM): The detailed document on the target company prepared by the investment bankers, received by a fund only after it negotiates and signs a Non-Disclosure Agreement.
Confidentiality of the DDR report: The due diligence report is presented confidentially to the investment manager; a copy is generally not made available to the company, though an extract may be sent for clarification, or a separate observation list prepared.
Co-sale / Tag along right: A right allowing other shareholders to insist that a potential purchaser buys an equivalent percentage of their shares at the same price and terms. Its rationale is to make shares harder to sell, because AIF investors do not want founders and key management reducing their stakes while the fund remains invested.
Cost-cover approval: An approval sought from the Investment Committee for out-of-pocket expenses required to process a deal, alongside or instead of the "go-ahead" to negotiate.
CSCRF categorisation: SEBI's Cyber Security and Cyber Resilience Framework grades regulated entities into MIIs, Qualified, Mid-size, Small-size and Self-certification REs. For AIFs the category is decided at the Manager level on the previous year's data, clubbing the corpus of all AIFs and VCFs managed, and stays fixed for the financial year.
Definitive agreements: The set of binding agreements signed between the investee company and the investment manager representing the AIF to complete the investment transaction - principally the Share Subscription or Purchase Agreement and the Shareholders' Agreement.
Down round: A financing round in which the valuation of the company is less than it was in the previous round, caused by adverse performance or external factors that reduce investor confidence.
Drag along (bring along) right: An obligation on other shareholders to sell to a potential purchaser if the holder of the right sells to that buyer. Usually insisted on when the AIF is a minority investor, so the combined stake attracts a control or strategic premium instead of a minority or non-marketability discount.
Financial DDR: Verification of books of account, financial statements and transactions to determine the true and fair view, the accuracy of representations in the Information Memorandum and undisclosed material financial information. Usually covers at least the past three financial years and includes direct and indirect tax matters.
Full ratchet: An anti-dilution method under which the investor converts his preference shares at the lowest issue price the company has offered. It is always more beneficial to preferred holders, but is complicated in operation due to tax and regulatory issues and can create conflicts with founders and other shareholders.
Fund governance: At its simplest, the control structure within which funds are managed, directed and controlled. Its central themes are manager oversight, outsourced independent valuation, segregation of functions, absence of conflicts of interest, and increased transparency and reporting.
Investment approach / screening filter: Pre-defined criteria against which a manager screens investee companies - sector, prior funding, revenue threshold, management experience - which limits the options and serves as an initial assessment on the hundreds of companies approaching the fund.
Investment Committee: A committee the investment manager may constitute to approve the fund's investment decisions, comprising internal members and external independent members and experts not entrusted with day-to-day management of the AMC, so as to prevent conflict of interest.
Investor Advisory Committee: A non-mandatory committee of majority investor representatives that provides informed guidance to the manager or Investment Committee on conflict resolution, risk management, governance, investor relations and reporting, and statutory or tax issues needing investor consideration.
Investor Due Diligence (IDD or DDR): The comprehensive examination of the facts, representations and affairs of a potential investee company by the AIF's investment manager before firming up the investment. It does not commence unless the term sheet is executed by both parties.
Key management personnel (AIF): Members of the key investment team of the Manager as disclosed in the PPM; employees involved in decision making for the AIF including senior management at Managing Director, CEO, Chief Investment Officer or Whole Time Director level; and any other person the AIF or Manager declares as KMP.
Keyman and Indemnity Insurance: An industry best practice under which the fund identifies its Key Persons or Key Executives and takes both types of cover; those key persons should inform investors of any situation that can substantially affect their dedication to the Fund.
Legal DDR: Conducted by a corporate law firm to determine the legal aspects of the business, IPR protection, contractual relationships, material contracts, outstanding litigation and its possible outcomes, and statutory compliance and defaults.
Liquidation preference: A right in recognition of the risk the investor bears, under which preferred shareholders receive a certain amount of proceeds in priority to all other shareholders including founders. Triggered on sale of shares or substantial assets, acquisition, merger, consolidation, amalgamation or demerger.
Management Presentation (Investor Pitch): The meeting arranged by the bankers between the investment team and the investee company's key management, where management presents an overview and both deal teams engage in technical discussions on the business case, numbers and current performance.
Market-SOC (M-SOC): A Security Operations Centre designed for smaller registered entities, offering a more accessible and cost-effective solution than building a full-fledged SOC; managers classified as self-certification REs with a client base of less than 100 are exempt from the mandatory M-SOC requirement.
Milestone valuation: Pegging the valuation to technical or commercial targets set out in the business plan, rather than to a future forecast. Missing a milestone need not cancel the investment but may cause a downward valuation revision, a down round, or delayed future investment.
Non-participating liquidation preference: The investor receives either the guaranteed return equal to the liquidation preference multiple, or the participation right to share the remaining proceeds in proportion to shares held - whichever he chooses, not both.
Online Dispute Resolution (ODR): The route investors may take at any time; if chosen while a SCORES complaint is pending, the complaint is treated as disposed on SCORES. AIFs must enrol on the MII-operated ODR Portal, display a link on their websites and apps, and train staff for online conciliation and arbitration.
Option pool: A pool of shares reserved for stock options to employees, which lapse if pre-defined conditions are not met. Its extent matters to investors because exercise dilutes them; an ideal pool for an Indian start-up is between 5 and 10 per cent of capital.
Participating (double-dip) liquidation preference: The investor receives the guaranteed return equal to the liquidation preference multiple and, in addition, participation rights to share the remaining proceeds in proportion to the shares held.
Pre-emptive right: The most common anti-dilution right, enabling a shareholder to maintain his percentage shareholding by participating pro rata in future issues or on exercise of stock options. It is a right and not an obligation, and is typically associated with Convertible Preference Shares.
Preliminary Investment Memorandum (PIM): A memorandum presented to the Investment Committee detailing the proposed investment and deal structure, in order to obtain authorisation to sign the term sheet.
Proprietary-sourced opportunity: A deal the fund finds itself rather than through a banker's teaser; here the investment team signs an NDA directly with the target company to receive confidential information from management.
Protective provisions: Rights given to a class of preferred stockholders - generally minority or preference shareholders - to approve important decisions, covering changes in preferred share numbers, MOA or AOA modification, creation of a new preferred class with better preferences, restructuring, dividends, board size, redemptions, dissolution and new option plans.
Right of First Offer (ROFO): A selling shareholder must first seek the ROFO-holder's best offer, then may approach the market. A lower market offer obliges him to sell to the holder at the holder's price; a higher market offer allows him to sell in the market.
Right of First Refusal (ROFR): A selling shareholder must approach the ROFR-holder with the best quote obtained from market participants; the holder may buy by matching that quote or refuse.
SCORES: SEBI's web-based centralised SEBI Complaint Redress System where investors lodge complaints against AIFs; complaints are automatically forwarded to the AIF for resolution and reporting through an Action Taken Report, which is routed back to the investor.
Shareholders' Agreement: An inter-se agreement among shareholders, necessary because the conditions in the share subscription agreement bind only the company and not its shareholders, who are not party to it. The company is made a party where clauses need privity of contract with it.
Share Subscription Agreement: The main transaction document in equity financing where a new issue of shares is required. It details the terms of the investment and provides for rights superior to those of an ordinary investor under the Companies Act, and covers board reconstitution and key appointments.
Shelf placement memorandum: The document filed with SEBI through a Merchant Banker, with the stipulated fee, before a co-investment facility is offered; it sets out the principal terms of co-investment, the governance structure and the regulatory framework.
Supervisory Committee: A best-practice committee meeting at least once a year with powers over valuation of assets exceeding the pre-defined maximum investment per company, governance issues, fund terms and resolution of potential conflicts - though its resolutions cannot replace the mandatory consent of investors on matters requiring it.
Teaser (or flier): A brief one to three page summary of the company and the opportunity, sent by the investment bankers appointed by the investee company to prospective funds selected on the basis of business sector and investment criteria.
Term sheet: The non-binding Letter of Intent, also called the Summary of Principal Terms, entered into by the manager with a potential investee company. It confers no contractual rights, carries a validity period extendable by mutual consent, and usually states a valuation range rather than a specified amount.
Thematic investing: An investing method where the manager identifies significant opportunities or popular trends without extensive research on individual stocks, investing across the value chain of a theme - and managing risk by spreading across industry segments that are not highly correlated.
Three times co-investment cap: An investor's co-investments in an investee company across CIV schemes may not exceed three times his contribution to the total investment made in that company through the AIF scheme - not applicable to multilateral or bilateral development financial institutions, State Industrial Development Corporations, or government-owned or controlled entities including central banks and sovereign wealth funds.
Twenty-one day grievance timeline: Under the SEBI (Facilitation of Grievance Redressal Mechanism) (Amendment) Regulations, 2023, AIF Managers must redress investor grievances within 21 calendar days from the date of receipt of the grievance.
Veto rights: The right to oppose a corporate action even if it has the requisite majority - known as negative control, or the investor's right to say no as a defence of his own interests.
Virtual data room: The repository through which the investee company provides detailed confidential information to the investment team - constitutional documents, board minutes, books of account, tax returns, invoices, payroll, statutory filings, property agreements, IP documentation, employee lists and historical audited financials.
Weighted average anti-dilution: A method under which the new conversion price equals the total consideration received from all issues divided by the total number of shares issued till date; that price is used to compute a revised conversion ratio. It protects some, not all, of the value of the preferred shares.

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Original explanatory writing based on the official NISM workbook for Series XIX-D, which is published and copyrighted by NISM. Check figures against the current edition at nism.ac.in.

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