Husk Power Systems: Financing Expansion

Abstract

Husk Power Systems, a young but widely celebrated firm based in India, needs $1.5 million to $2.5 million of expansion capital to grow quickly beyond the small footprint it had established in northeast India. It was a successful green-energy enterprise that aimed to provide electricity to millions of rural Indians in a financially viable way. With 10 mini power plants that used rice husks as a fuel source and a presence in 25 isolated Indian villages as of April 2009, the company's goal was to reach 350,000 to 400,000 consumers in 400 villages by the end of 2011. It was offered a convertible-note financing structure by a cleantech private equity firm and needed to assess whether it suited the company's and founders' interests.This case was designed for and is used in Darden's Entrepreneurial Finance and Private Equity elective. With less of a focus on the financials, the Husk case has also been used in other Darden courses such as Social Entrepreneurship and Global Economies and Markets in a module focusing on emerging markets. Excerpt UVA-F-1629 Rev. Nov. 20, 2013 Husk Power Systems: Financing Expansion In Washington D.C., late April meant enjoying the cherry blossoms, but for Manoj Sinha and Chip Ransler, it was all about securing the future of their company—Husk Power Systems (HPS). They had just left their second meeting with Simon Pasternik, a partner at GreenPoint Partners and a potential investor. HPS needed $ 1.5 million to $ 2.5 million of expansion capital to grow quickly beyond the small footprint it had established in northeast India. It aimed to provide electricity to millions of rural Indians in a financially viable way. With 10 “mini power plants” and a presence in 25 isolated Indian villages as of April 2009, the goal was to reach 350,000 to 400,000 consumers in 400 villages by the end of 2011. GreenPoint, a green-energy-oriented and emerging-markets-focused firm, was a great fit to finance HPS. During their first meeting, Pasternik concentrated on the usual drivers of investment decisions: EBITDA, operating margins, and the management team. This time, he carefully examined how the operations side of the business might affect the expansion plans and the ability to deploy that much capital. Pasternik grilled Ransler and Sinha on whether HPS had the capability, operational structure, and management team in place to meet the financial projections the business plan laid out. Ransler and Sinha were certain HPS's business model was well suited for India's environment and that it capitalized significantly on obstacles unique to India. Ransler painted HPS's future as bright: It would be a dominant supplier of electricity to remote rural areas. The country's demographics and geography spoke loudly to the market size and to the potential entry barriers and operational challenges. Investors seemed to agree. GreenPoint was one of about a dozen funds that showed serious interest in investing in HPS. . . .