Definition of 'Cost Of Acquisition'

A business sales term referring to the expense required to attain a customer or a sale. In setting a marketing and sales strategy, a company must decide what the maximum cost of acquisition will be, which effectively determines the highest amount the company is willing to spend to

attain each customer.

Investopedia explains 'Cost Of Acquisition'

This cost is tied to marketing and sales campaigns because the more streamlined those campaigns become, the lower the customer cost of acquisition will be. Conversely, in a highbudget marketing and sales campaign, the acquisition cost may be relatively high depending on how many sales or customers the campaign draws in Read more: http://www.investopedia.com/terms/c/costofacquisition.asp#ixzz1rGfBw68l

Amortization of Telecommunications Spectrum Licenses We own the rights to use and operate specified spectrums in some jurisdictions over a certain period of time, through annual minimum fees plus a variable portion depending on the future revenues from the services. License fees payments, the discounted value of the fixed annual fees to be paid over the license period, and certain other direct costs incurred prior to the date the asset is ready for its intended use are capitalized. Capitalized license fees are amortized from the date the asset is ready for its intended use until the expiration of the license. Interest is accreted on the fixed annual fees and charged to interest expense. Variable license fees are recognized as period costs.
This excerpt taken from the HTX 20-F filed May 9, 2008.

Amortization of Telecommunications Spectrum Licenses We own the rights to use and operate specified spectrums in some jurisdictions over a certain period of time, through annual minimum fees plus a variable portion depending on the future revenues from the services. License fees payments, the discounted value of the fixed annual fees to be paid over the license period, and certain other direct costs incurred prior to the date the asset is ready for its intended use are capitalized. Capitalized license fees are amortized from the date the asset is ready for its intended use until the expiration of the license.

GROWTH CAPITAL AND EQUITY ASSISTANCE FOR MSMES (GEMS)

One of the major factors inhibiting the growth of Micro, Small and Medium Enterprises (MSMEs) is the non availability of adequate owners capital i.e margin. External equity i.e the PE/ VC investment is also rare due to various issues in MSMEs viz small ticket size, high transaction cost, difficulty in understanding equity related complexities in MSME promoters, valuation and exit issues, lack of preparedness/ willingness in promoters in diluting ownership/ control, etc. Due to shortfall in meeting margin requirements, MSMEs often languish to get adequate working capital, which is the life and blood of their business. MSMEs also find it difficult to raise loan assistance for other growth requirements viz investments in marketing, brand building, creating distribution network, technical know-how, software purchase, investment in energy efficiency and quality improvement equipments, R&D, etc., mainly as these investments by nature are non-asset creating (i.e. intangible assets) and hence do not provide security comfort to the lenders. To obviate the aforesaid problems of MSMEs, SIDBI has come out with a scheme Growth Capital and Equity assistance for MSMEs (GEMs). Under the scheme, assistance in the form of equity/ quasi-equity is provided to deserving MSMEs. In India, more than 90% of the MSMEs are constituted as partnership/ proprietorship concerns, where investment in pure equity form is difficult. Further, SIDBI also understands that most of MSME businesses in India are family owned with value built over generations. Due to these reasons, Indian MSMEs find it difficult to dilute large part of ownership and control in favour of an external entity. Looking to this, SIDBI, based on best global practices, has come out with various

innovative financial instruments for MSMEs of different sizes and constitutions, including Subordinated debt (SD)/ Optionally Convertible Subordinated Debt (OCSD), which is treated as quasi-equity by SIDBI. While SIDBI provides Equity/ equity linked assistance for deserving corporatised MSMEs, SD provides quasi equity support to all constitutions of MSMEs. Subordinated capital is a highly popular instrument among MSMEs globally, with minimal equity complexities and simpler documentation and hence quick to deliver and less costly for MSMEs. It is provided on the strength of business/ backing of cash flows rather than asset cover/ collateral security. The initial longer moratorium on principal installments ensures greater chances of success of the ventures. Apart from direct funding, SIDBI, in order to reach out to a wider segment of MSMEs, will use various delivery channels like VC Funds / NBFCs etc as Channel Partners, Credit Delivery Arrangements with select NBFCs for providing growth capital to MSMEs for their margin and other bonafide growth requirements.

Growth Capital and Equity Assistance Scheme for MSMEs (GEMs)

What is Growth Capital and Equity Assistance for MSMEs (GEMs)
GEMs is given on the strength of business model/management strength & is not dependent on asset cover/collateral. o It could be used to bridge the gap between the two chief sources of finance viz. bank loans (senior debt) and promoters capital. o SIDBI offers this assistance in form of mezzanine/ convertible instruments, subordinated debt and equity (in deserving cases). This quasiassistance is collateral free, has higher moratorium on repayment and a flexible structuring. In view of the above, the expected rate of return to SIDBI is higher than that on secured loan assistance.

Need for GEMs for MSMEs

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Promoters financial resources are generally limited and might not meet the growth aspirations of the business. Hence the need for equity/quasi equity type of assistance to enable them to leverage it for conventional bank/debt funding. MajorityMSMEs are generally not able to raise external equity from Venture Capitalists / PE investors due to

various issues viz. valuation complexities, lack of clear exit options, small ticket/deal size, expensive due diligence etc. o Assistance for non asset creating investments is generally difficult under normal debt schemes. Large number of MSMEs have a non-corporate constitution and hence cannot raise equity capital.

Uses of GEMs

Bridging the gap in means of finance for scaling up/ expansion/ modernization projects. o For intangible investment viz. Marketing/R&D/product development/IPR filing etc o Working capital margin requirements. Normal Working capital requirements are not eligible under the scheme.

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Products Subordinate debt(with/without conversion options) Mezzanine/ Convertible instruments viz Optionally Convertible Debt/ Debentures, Redeemable Preference Shares. Equity (on a selective basis) where business model/exit options clearly support such investment.

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Eligibility

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an MSME as per the definition of Government of India (MSMED Act) And SIDBIs existing customers (meeting internal rating criteria)

or Units with past 3 years of profitability and 2 years of satisfactory banking credit track record (meeting internal credit rating criteria)
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Security (in case of debt based investments) Acceptable external rating from CRISIL, ICRA, D&B, SMERA etc would be desirable. No collaterals Residual charge on available assets of the beneficiary unit and assets created out of the assistanceSIDBI assistance Personal guarantee of the promoters Please see Interest rate structure chart

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Rate of return Others terms

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Tenure of assistance could be upto 7 years (with upto 3 years moratorium on principal repayments) Subordinated Debt restricted to 1/3rd of Post project tangible net-worth@ of the unit. DER/ DSCR norms as per internal guidelines of the bank. MSMEs can access long term structured assistance especially for investments in intangible assets MSMEs can leverage sub debt assistance for raising higher

Advantages to

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MSMEs

debt funds from SIDBI As most of the structures are self liquidating in nature, MSMEs do not face various complexities viz. enterprise valuation, equon exit issues, etc. Customers desirous of availing assistance under GEMs may send brief information about their business as per Annexure enclosed. The duly filled, signed copy may be mailed/ sent to nearby SIDBI office. A copy may also be mailed to

How to approach SIDBI for Risk capital

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sfrc@sidbi.in for preliminary approval of SIDBI.

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Once, the proposal is found in-principally eligible by SIDBI, the detailed application would be issued by SIDBI to the customer.

@ Post project Tangible net worth' would mean Tangible net worth as on date of last audited balance sheet + capital (including share premium) infused after the date of last audited balance sheet till the date of present proposal for assistance + additional capital (including share premium) proposed in the project. Tangible net worth means Capital + preference shares (excluding that part which is redeemable within 3 years) + Share premium + Reserves and Surplus Accumulated losses Revaluation reserves - Misc. exp. not written off Intangible/ Fictitious assets + capital inducted after date of last audited balance sheet.