In: Finance
Clawback is a provision in which incentives/money that has already been paid to employee has to be returned to the employer or firm. This is a special contractual obligation. Clawbacks are accompanies by a penalty, making them different from simple repayments or refunds. This is usually used to to guarantee the service or to bind the employee to perform up to the mark.
For example, a new manager starts to handle a particular branch of a company called Dunder Miflin. Say there was a clause in the contract that the manager will get a bonus if the sales increase by 10% during the year. Sales increased by 13% so the bonus was given. However, during the audit of the company it was found that the sale actually increased by 9.5%. In this case, the manager will have to pay the bonus back along with a penalty for submitting false report.
Moreover, on a smaller scale, these are enforced on employees to make sure they have double incentives to work according to quality standards as expected by the doctor.
Uses of Clawback Provisions
STEPS IN VC FUNDING
1. Deal Origination
VC process starts with orignation of deal. Many sources can be tapped like referrals, parent organisation, trade partners, industry association, friends etc.
2. Screening
Venture capitalist, to choose the best ventures first of all undertakes preliminary scrutiny of all projects on the basis of certain broad criteria, such as technology or product, market scope, size of investment, geographical location and stage of financing.
3. Evaluation
After a preliminary screening, an in depth evaluation is carried out. Venture capitalists in Indian factor in the entrepreneur’s background, especially in terms of integrity, long-term vision, urge to grow managerial skills and business orientation. A detailed study of project profile, track record of the entrepreneur, market potential, technological feasibility future turnover, profitability, etc. is undertaken.
4. Deal Negociation and Post Investment Activity
If the venture is found viable for investment, this stage is carried out. A deal is vdeveloped which consists of the investment amount, number of stages of financing and other contractual details like equity percentage if applicable. Post Investment, the VC helps and guides the business in its operations.
5. Exit Plan
This might be the most important stage as an exit plan is as important to plan as the venture itself.