Fund seeker or valuable partner

Well-prepared bankable projects make you a valuable partner to investors

For any ambitious infrastructure project developer, the journey from a nascent idea to a fully operational asset is akin to navigating a complex maze. You've conceptualised, studied, designed, developed, protected, and structured your project – but now comes the ultimate test: securing the capital to construct.

This happens in the last stage of project development, where all your meticulous planning and groundwork lead to successfully raising capital.

This final stage is about how it will be funded and who will fund it.

At each turn, investors will ask three fundamental questions:

1. “Can we invest in your project?”

2. "Can we invest in the project sponsors?"

3. "What financing terms can we advance?".

Resolving and answering these questions confidently is what unlocks the funds they manage on behalf of their own partners and investors.

Answering these questions successfully depends on the quality of your work in the preceding four stages of project development.

Investors need you too

Because they control a large amount of capital, it is easy to assume investors hold all the power in the relationship between investors and investee.

Let me let you in on a secret: well-prepared bankable deals are rare.

If you have properly prepared your project following all the guidance received in previous notes and have organised your information, you have put yourself and your project in a strong position with investors.

Investors are looking for good deals as much as developers are looking for good investors.

They have large pools of capital that they must deploy in order to obtain returns for their own investors. The more efficient they are with deploying capital to bankable projects, the quicker they can raise more from their investors.

The more portfolio companies they have that can get projects through to financial close, the lower their exposure to concentration risk in the event of failure in one of their portfolio companies.

Therefore, as a developer and sponsor, the better prepared your project, the more choices you'll have between which investor you let in on your deal.

A well-prepared infrastructure strengthens your negotiation power and makes you a valuable partner to investors, which can lead to better financing terms and lower costs.

Proper preparation in defining and protecting your project directly influences your ability to attract funding on favourable terms.

That said, let's go into the types of capital.

Types and Sources of Capital

I had summarised the three main types of capital that make up the capital stack of infrastructure projects in this note, “Critical late-stage prep before approaching investors”. They are equity, mezzanine, and senior debt. Here they are again, with subtypes and likely sources.

1. Equity Financing: The Foundation of Ownership and Risk

Equity represents ownership in the project and is considered the highest-risk capital, as equity providers are the last to be repaid in the event of insolvency. It is a fundamental component, and lenders will NOT invest without equity, because equity demonstrates commitment and absorbs initial losses, acting as a "cushion" for senior lenders. Typically equity portion ranges from 20% - 40% of project costs, with higher percentages for higher-risk projects. Common types include

• Sponsor/Developer Equity: The bulk of initial project equity is provided by the project sponsors themselves, demonstrating their commitment and absorbing initial losses, cash flow from existing businesses, Personal savings, other loans,

• Consortium Partner Equity: Contributions from other project participants like contractors, equipment suppliers, or off-takers. This can be strategic, for instance, to develop "captive business".

• Private Equity (PE): Capital from institutional equity investors such as private equity funds, pension funds, insurance companies, and angel investors. Angel investors are a primary source of equity for, particularly for new developers and projects with high social impact.

• Public-Sector Shareholders: A government that is a contracting authority might hold shares to reduce project costs by offsetting equity revenues against contract payments.

• Contingent/Standby Equity Commitments: Sponsors may provide these to cover unforeseen cash-flow deficits.

2. Hybrid/Mezzanine Financing: Bridging the Gap

These instruments combine characteristics of both debt and equity, filling the gap between senior debt and equity, typically carrying higher risk and higher returns than senior debt.

• Subordinated Debt (Junior Debt)/Mezzanine Debt: Ranks below senior debt in repayment priority but above common equity. Often provided by sponsors as quasi-equity or by non-bank investors like infrastructure funds, some commercial banks. Its inclusion can create a deeper equity cushion, reducing risk for senior lenders.

• Equity Bridge Loans: Short-term loans offered as revolving credit while permanent financing is secured. Sources include Infrastructure funds, private equity

• Vendor Finance: Finance offered by equipment sellers, construction contractors, or suppliers, potentially taking on risks unacceptable to traditional financial markets.

3. Debt Financing: Leverage for Growth

Debt involves loans or bonds with contractual repayment obligations and is generally cheaper than equity due to lower risk and tax deductibility. It is the workhorse of project finance, often forming 60%-80% of the project cost. Sources can include

• Commercial Bank Loans: A traditional and common source of project financing.

  • Syndicated Loans: Provided by a group of banks (a syndicate or club) on a pro-rata basis under identical terms.

  • Term Loans: Loans with maturities ranging from 2 to 10 years or longer, with repayment schedules linked to anticipated cash flow.

  • Committed Facilities/Revolving Credit: Banks agree to provide funds as requested up to a limit, including for construction or working capital.

  • Working Capital Facilities/Supplier Loans: Short-term funds for day-to-day operations or favourable payment terms from suppliers.

• Bonds: Capital Market Instruments Issued to low-risk institutional investors e.g., pension funds, insurance companies, mutual funds), allowing direct access to debt capital markets.

  • Infrastructure Project Bonds: Tradable debt instruments often used in public markets (non-banking) markets, requiring credit ratings, issued through public or private placements for raising funds.

  • Asset-Backed Securities (ABSs): Bonds backed by pooled infrastructure loans or project receivables.

  • Special bonds: Like Green bonds (for projects with clear climate benefits), Blue bonds (for projects with clear benefits to oceans and aquatic life), Social impact bonds (for projects with clear, large-scale social impact)

  • Convertible Bonds: Can be exchanged for stock at a set rate.

4. Other types of funding and support

• Government/Public Sector Financing: Strategic Support

Governments play a crucial role through direct funding and support schemes or securing the participation of international Development banks, Export Credit Agencies, and Development finance institutions for large-scale projects, both private and PPPs.

o Multilateral Development Banks (MDBs): Institutions like the World Bank Group, ADB, African Development Bank, KfW Development Bank. They provide debt, equity, and hybrid instruments, often with a development mandate and help against political risk.

o Bilateral Agencies/Export Credit Agencies (ECAs): Agencies like export-import banks, which provide finance often tied to national interests, such as supplier/buyer credit, guarantees, and direct loans.

o Development Finance Institutions (DFIs): Provide capital, often with a development mandate, and can be bilateral or multilateral.

• Carbon Finance/Climate Finance: Dedicated funds and instruments to support investments with positive climate externalities, often offering low-cost financing (grants, seed funding, concessional loans for projects with clear, provable climate impact benefits.

• Islamic Finance: Structures compliant with Sharia law are rising in popularity; the main principles are i) avoiding interest-driven instruments, ii) avoiding investments in companies that produce items forbidden by Sharia law (alcohol production, pork processing, gambling), avoiding high uncertainty and risks (derivatives, short selling). Islamic financing is becoming popular for infrastructure projects. Sukuk financing, for instance, is rising in Nigeria

Mindset with approaching investors

Engaging with potential funders is a journey that demands not just a solid project but also the right mindset and strategic approach. Remember that investors need you too, and preparedness is power, and raising capital will be "less painful" if you have systematically executed the four previous stages of project development. In addition to these, adopt the following mindset and approaches.

1. Discuss project size early: Investors typically have a range for the project sizes they target. Sometimes their website shows this, sometimes it is in initial interactions that you discover. Ask for this range to see if your project falls within. Even if your project is outside this range, it is not a hard and fast rule; investors can be persuaded to be flexible, especially if is a well-prepared project. considered, but

2. Clear project potential: Investors want clarity on "why and what". Your core goal is to ascertain if there is predictability and sustainability of results. This means moving beyond mere feasibility ("if something can be done") to proving viability ("if it will thrive") – The business plan and draft information memorandum prepared are a great start.

3. Understand their risk-reward profile: Investors are inherently risk-averse, especially in physical infrastructure, but as described, some are more risk-averse, depending on the type of capital they provide; their levels of scrutiny will vary. Also, if you are raising project finance, then more extensive reviews of the underlying contracts will be carried out. Show them you've engaged legal, technical, E&S, and transaction expertise from early on, and that material risks are embedded in agreements with the right counterparties.

4. Prioritise transparency and integrity: This is non-negotiable. Be fully transparent about your corporate structure, ultimate beneficial owners, any Politically Exposed Persons (PEPs), and maintain impeccable integrity records. Strict Know Your Customer (KYC) and Anti-Money Laundering (AML) checks are standard, and investors, especially official lenders, have zero tolerance for compliance fines, sanctions, or association with blacklisted organisations.

5. Clear separations of roles: If the sponsors in the project play another role, like operator, contractor, supplier, or offtaker, then clear roles and contracts that show these separately managed relationships and roles are important.

6. Master your financial model: Your financial model is the central repository of project data, assumptions, and financial relationships. It must be robust, allowing for scenario analysis and clearly demonstrating key financial metrics like Debt Service Coverage Ratio (DSCR) and Internal Rate of Return (IRR). Prepare to work closely with investors' teams to refine projections and ensure alignment on assumptions.

7. Prepare to negotiate strategically: Understanding the key terms for both equity and debt is paramount. You'll negotiate debt size, interest rates, repayment schedules, covenants, and security with lenders, and equity size, voting rights, board positions, and exit terms with equity partners. Familiarise yourself with these and secure advice that helps you navigate these negotiations, so you can secure more favorable terms.

Origination: The first steps towards funding.

After you have identified your target investors, raising capital starts with origination and onboarding as a client and potential investee. This is the preliminary assessment phase where potential investment opportunities are identified, screened for alignment with a funder's objectives and risk appetite, and the initial desktop checks are conducted, with internal approvals sought to proceed with the transaction.

Step 1: Approach investors

Either by virtual submissions, visiting their offices or meeting them at networking events, or obtaining referrals from your professional networks, the first contact is made. Then the investor’s team responds with initial questions and the onboarding process.

Step 2: Sign Non-Disclosure Agreement (NDA)

A non-disclosure agreement is typically the first formal document, allowing the sponsors and the investor to exchange information.

Step 3: Collect preliminary KYC Information

Current Sponsors’ corporate and financial information, performance history, and project summaries, and project information are collected. This step is often done with forms or checklists, which are filled out in addition to providing evidence of what is requested to complete an initial KYC check.

Step 4: Conduct initial assessments and secure internal approvals

Investors conduct a high-level desktop assessment, deriving initial project economics screening against strategic objectives like developmental impact, market attractiveness, business nature, industry sector, investment size, and promoter background. Checks for politically exposed persons (PEPs) are done. Internal memos are prepared, outlining the opportunity, risks, expected returns, and areas for further due diligence. These are submitted to internal investment committees for approval to further explore the opportunity.

Step 5: Sign off on commencing the transaction

Following internal approval, a transaction mandate is executed with you, the developer, to proceed with your project. It outlines the process under which the investor will execute the deal; an indicative term sheet, which will be updated later, can also be provided at this point. The mandate also includes the types of fees that will be incurred by you and your project to complete the due diligence, structuring, and financing. This mandate formally signals the commencement of the due diligence phase. Important to understand that signing this mandate is a formal commitment that triggers significant resource allocation. Budget for upfront fees and potential reimbursement of expenses; this is a critical financial obligation at an early stage.

Upon successful completion of this origination phase, your project information and preliminary assessments transition to the detailed due diligence & structuring phase, a deeper dive into the bankability of your project.

Bringing it all home

Raising capital is not just about filling out checklists or sending pitch decks; it is the culmination of disciplined preparation. At this stage, your project will either stand tall or falter depending on the strength of the foundation you have laid in the earlier phases of project development.

Remember, investors are not simply gatekeepers of capital—they are looking to form partnerships with developers and sponsors who have well-prepared, viable projects they can deploy funds they manage to.

This is a stage where meticulous preparation directly translates into negotiating power; approach it with clarity and confidence that properly preparing your project has provided. Remember, you are not merely seeking capital; you are the originator of a rare and valuable bankable deal.

Bankable projects are rare, and if you have prepared one, you are in a position of strength.

Reviewed to complete this note

Project finance for Business Development - John Triantis

The Law and Business of International Project Finance A Resource for Governments, Sponsors, Lawyers, and Project Participants – Scott L. Hoffman

The Law and Business of International Project Finance, Second Edition Scott L. Hoffman

Angel Capital How to Raise Early-Stage Private Equity Financing - Gerald A. Benjamin, Joel B. Margulis

Innovative Funding and Financing for Infrastructure Addressing Scarcity of Public Resources Jeff, Delmon

Principles of Project Finance – E.R Yescombe

Infrastructure Investing Managing Risks Rewards for Pensions, Insurance Companies and Endowments - Rajeev J. Sawant

Introduction to Project Finance in Renewable Energy Infrastructure, Including Public-Private Investments and Non-Mature Markets - Farid Mohamadi

Navigating Project Selection and Execution for Competitive Advantage by John Triantis

International Project Finance Law and Practice - John Dewar

International Project Finance in a Nutshell - John Niehuss

Project Financing 8th Edition - Frank Fabozzi, Carmel de Nahlik

Financing Energy Projects in Developing Countries – Hossein, Razavi

Project Financing Asset-Based Financial Engineering - John D. Finnerty

Public Private Partnerships Principles for Sustainable Contracts - Niccolò Cusumano, Velia M. Leone, and Veronica Vecchi

Innovative Funding and Financing for Infrastructure Addressing Scarcity of Public Resources Jeff, Delmon

Bridging Nigeria’s Infrastructure gap for economic growth and development: Innovative Options for Financing Infrastructure Development, Presented by Acting MD/CEO The Infrastructure bank Plc (Represented by Damian Attah)