A Thillai Rajan

There has been rapid growth in private equity (PE) investment in infrastructure over the last decade. This article is an analysis of PE funding in infrastructure based on data from Indian projects. Data from 335 infrastructure projects with PE investment and 370 projects with no PE investment have been used in the analysis. The average investment in projects made by foreign PE investors was higher than that of domestic PE investors. The average investment made by a mix of domestic and foreign investors was significantly higher than the average investment sizes of a group of either the domestic or foreign investors, suggesting that the presence of domestic investors increased the comfort level for foreign investors to enter the market. The main motivation for syndication was to pool capital from different investors. The overall characteristics of the operating environment also play an important role in attracting PE investment. States that had higher values of PPP and Property Right Indices and lower corruption levels attracted PE investment in more projects. Comparing the state level characteristics of projects with and without PE investment showed that PE investors are prepared to invest in riskier environments than other investors.

Venture Capital (VC) has emerged as the dominant source of finance for entrepreneurial and early stage businesses, and the Indian VC industry in particular has clocked the fastest growth rate globally. Academic literature reveals that VC funded companies show superior performance to non VC funded companies. However, given that venture capitalists (VCs) select and fund only the best companies, how much credit can they take for the performance of the companies they fund? Do the inherent characteristics of the firm result in superior performance or do VCs contribute to the performance of the portfolio company after they have entered the firm? A panel that comprised VCs, an entrepreneur and an academic debated these and other research questions on the inter-relationships between VC funding and portfolio firm performance. Most empirical literature indicates that the value addition effect dominates the selection effect in accounting for the superior performance of VC funded companies. The panel discussion indicates that the context as well as the experience of the General Partners in the VC firms can influence the way VCs contribute to the efficiency of their portfolio companies. © 2010.

Purpose – The venture capital and private equity (VCPE) industry in India has grown significantly in recent years. During five-year period 2004-2008, the industry growth rate in India was the fastest globally and it rose to occupy the number three slot worldwide in terms of quantum of investments. However, academic research on the Indian VCPE industry has been limited. This paper seeks to fill the gap in research on the recent trends in the Indian VCPE industry. Design/methodology/approach – Studies on the VCPE transactions have traditionally focused on one of the components of the investment lifecycle, i.e. investments, monitoring, or exit. This study is based on analyzing the investment life cycle in its entirety, from the time of investment by the VCPE fund till the time of exit. The analysis was based on a total of 1,912 VCPE transactions involving 1,503 firms during the years 2004-2008. Findings – Most VCPE investments were in late stage financing and took place many years after the incorporation of the investee firm. The industry was also characterized by the short duration of the investments. The type of exit was well predicted by the type of industry, financing stage, region of investment, and type of VCPE fund. Originality/value – This paper highlights some of the key areas to ensure sustainable growth of the industry. Early stage funding opportunities should be increased to ensure that there is a strong pipeline of investment opportunities for late stage investors. VCPE investments should be seen as long-term investments and not as “quick flips”. To achieve this, it is important to have a strong domestic VCPE industry which can stay invested in the portfolio company for a longer term. © 2011, Emerald Group Publishing Limited.

Incubation centers have emerged as an important source of finance and support for new and nascent companies. In line with the worldwide trend, there has been a substantial increase in the number of incubation centers in India during the past 10 years. Using data from 159 incubators and a sample of 1,058 incubatees from 40 incubators, this article provides an analysis of the trends in incubation support in India. Universities play an important role in providing incubation support-67% of the incubators were based in universities. Not only are there more incubators functioning in universities, but they have also been functioning for longer. In addition, 57% of the incubators were in private organizations, and 43% were in public sector organizations. There are interesting variations between incubation support and venture capital and private equity (VCPE) investment in India. Most of the VCPE investments in India are seen in metro cities, whereas in the incubation, most of the incubation centers and incubatees are located in non-metro cities. VCPE investments are largely driven by the private sector, whereas the public sector plays an important role in incubation support and financing. Private sector incubators are more effective than public sector incubators, as measured by the activity indicator and graduation ratio.

Purpose: Private equity (PE) has emerged as an important source of capital for infrastructure in recent years. There have been more than 2,000 deals by PE infrastructure funds till 2012, with annual investments in the range of $100-120bn. Substantial proportion of these investments has been in the energy and the power sector. This paper aims to compare power generation projects with and without PE investment. Design/methodology/approach: In this study, 148 power generation projects that were implemented in India during 2004-2011 were used for the analysis. Ordinary least squares and three-stage least squares regression have been used to analyze the impact of PE investment on unit project costs and project commissioning time. Findings: Projects with PE investment had lower unit capacity costs as compared to power projects that did not have PE investment. This indicated the ability of PE investors to select, invest and develop those projects that are cost-effective. However, projects with PE investment had longer commissioning time. This can be attributed to the active monitoring and governance practices that were associated with PE investment. Practical implications: The results highlight the key role that PE investors can play in power sector development in developing countries. Apart from providing capital to capital-starved economies, PE investors can help in developing cost-effective projects and contribute to sector development by institutionalizing robust processes and governance practices. Originality/value: This is one of the earliest studies to analyze the impact of PE investment on the power sector.

Purpose: Developing countries are increasingly looking to private sector investment for infrastructure development. Successful development of private infrastructure projects, however, depends on adequate availability of long-term debt to complement private sector equity. As domestic bond markets in many emerging countries are not very deep, availability of long-term debt funding for infrastructure has been limited. Recently, a new form of financial intermediation has emerged in India with the creation of infrastructure debt funds (IDFs) to create capital pools for long-term debt funding. This paper aims to analyse the effectiveness of IDFs for financing infrastructure projects. Design/methodology/approach: This paper uses a case study approach. The case studies were written using both secondary and primary information. Secondary information was obtained from various sources such as policy papers, websites and other published sources. Primary information was obtained from interviews with the top management of three IDFs. Information obtained from multiple sources was triangulated for consistency and correctness. Findings: IDFs have emerged as an effective intermediation mechanism for attracting long-term capital by offering a new investment product with appropriate risk-adjusted returns. For the fund seekers, IDFs are able to provide long-term capital at lower rates and higher flexibility. Unlike commercial banks, IDFs are able to add value to the projects apart from funding by periodic monitoring of the projects. Practical implications: Creating new forms of financial intermediation can help in reducing the financing gap for infrastructure projects, especially in emerging countries. Originality/value: IDFs have been analysed from a perspective of financial intermediation. The effectiveness of IDFs in bridging the funding shortfall has been evaluated from multiple perspectives.

Private financing of infrastructure projects is commonly seen in many countries today. In recent years, many private infrastructure projects have also attracted investment from Private Equity (PE) firms. Though there have been instances of PE investment in infrastructure even in the past, the growth has been substantial in recent years. This paper analyses the role of PE investments in infrastructure financing. The findings are based on an analysis of 2821 infrastructure projects that were announced during 1990-2009. It was found that projects with PE investment were larger when compared to projects that did not have PE investment, indicating that that PE investment helped in successfully financing larger projects. Our analysis also indicated that PE investment in infrastructure is more frequently seen in developed countries as compared to developing countries. In developing countries, the number of sponsors is higher in projects with PE investment without any corresponding increase in project size. This indicates that PE investors have helped in sharing the project risk among a larger group of investors, thereby reducing the risk faced by the individual sponsors. © 2011 Elsevier Ltd.

Subject area: Infrastructure finance. Study level/applicability: II MBA/Executive MBA (Project Finance, Infrastructure Finance). Case overview: It is generally believed that the economy of India is on the threshold of achieving significant growth in the coming years. The availability of adequate infrastructure facility will play a key role in realizing this growth potential. To accelerate the process of creating infrastructure capacity, the Government of India has opened up many infrastructure sectors for private sector investment. Creation of international standard airport facilities is an important component of such new infrastructure creation. This case study presents the initial development and financing closure of Bengaluru International Airport Limited (BIAL), the first major private sector airport in India. In retrospect, it is generally felt that BIAL was an important milestone in the privatization of airports in India. The blueprint for the greenfield PPP airport in Hyderabad was closely modelled on the BIAL project. The experience gained in the development of BIAL also played a major role in subsequent brownfield PPP airport expansion projects in Mumbai and Delhi. Expected learning outcomes: The goal of this case study is to illustrate the complexities that exist in the process of infrastructure development and financing. This following are the expected learning outcomes: The importance of using an appropriate project structure. The prevalence of early returns to project sponsors as compared to lenders. The process of achieving financial closure. Analyzing project risks and returns. Supplementary materials: Teaching notes.

This article presents an analysis of Private Equity (PE) syndication in infrastructure projects. Previous studies on syndication have been largely in developed countries, with few studies synthesizing the findings of research to support decisions at a sector level. The sample for this study was 358 worldwide deals with PE investments in energy, transport, and water and utilities sectors. First, we identify differences between infrastructure deals that have PE syndication with those that do not. Second, we analyze the drivers of PE syndication. Third, we understand the extent of PE syndication. Our findings indicated that PE syndication was driven by the need for local knowledge—which was critical due to the site-specific nature of infrastructure assets, translating into syndication with local partners. As round number increased, diversity of experience took precedence over level of experience, indicating that PE firms syndicated with other PE firms to achieve a varied set of skills.