Husk Power Systems, a youthful yet generally commended firm situated in India, needs $1.5 million to $2.5 million of extension money to become rapidly past the little foot shaped impression it had built up in upper east India. It is a fruitful environmentally friendly power vitality venture that planned to give power to a large number of country Indians in a monetarily practical manner. With 10 "smaller than usual force plants" that utilization rice husks as a fuel source and a vicinity in 25 detached Indian towns as of April 2009, the organization's objective was to achieve 350,000 to 400,000 shoppers in 400 towns before the end of 2011. It is offered a convertible note financing structure by a cleantech private value firm and needs to survey whether it suits the organization's and authors' hobbies.
· Scenario 3
· Terminal Value
· Projected Cashflows
Equity Stake of Founders after Equity Financing in 2012
· Equity share held by Founders
· Equity share held by GreenPoint
· Equity Share of the New Investor
Dilution and the Convertible Note
1. How attractive is HPS as an investment opportunity? Areas such as business model (management, technology, etc.), power market and risks should be critically discussed. Other relevant areas of discussion will also gain marks.
2. What concerns do you have about the company business model or expansion plan?
3. Describe the proposed financing structure. Evaluate the IRRs of the proposed investment and the founders implied equity stake under the following scenarios:
Scenario 1: HPS follow-on equity financing round occurs in 2012; $5 million in equity capital is raised in return for a 17% equity stake after conversion of the convertible note.
Scenario 2: HPS follow-on financing round occurs in 2012; $5 million in equity capital is raised in return for a 38% equity stake after conversion.
Scenario 3: The firm fails to expand and has no prospects of raising additional capital. The founders agree to liquidate the firm assets in 2014 using a liquidation value of $3.5 million.
4. What are the advantages/disadvantages of convertible note financing as compared with traditional preferred equity?
5. Would GreenPoint be better off using traditional preferred-equity financing?
6. What is the founders’ biggest concern in raising funds? Does the proposed financing structure mitigate this concern?
7. In conclusion, based on your analysis, how content will the investor, the entrepreneur and the firm be with the overall situation?