Husk Power Systems: Financing Expansion

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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.
Case Number: F-1629
Author: Loutskina, Elena
Sinha, Manoj
Type: Case
Author: Ransler, Chip
Learning Objectives: The core objective of the case is to evaluate how and why the proposed financing structure fits the current stage of the company's development. Here, one can evaluate the question from the perspective of the founders/entrepreneurs through analysis of whether (1) it allows the founders to postpone valuation of a young firm with a proven technology but unknown growth potential, (2) it does not bleed the company dry in the middle of an aggressive expansion, and (3) it allows the founders to keep a significant share of the company. The case also allows students to look at the deal from a perspective of a private-equity investor and evaluate the risk-return profile of the proposed deal. The rich setting of the case--the middle of rural India, which has longstanding traditions and rituals--further allows students to discuss the complications of doing business in emerging markets and emphasizes a strategic approach to adjusting business practices to a particular cultural setting.
Length: 20 pages.
Category: Entrepreneurship and Innovation
Entrepreneurial Finance
Industry: Energy
Published: 10/28/10
Revision Date: 07/24/12
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