My recent article on growth capital triggered a great deal of interest.
Companies responded to the message that they can rapidly raise capital on attractive terms to expand sales, marketing and production capacity, in other words, to “step on the gas”.
We decided that the topic of growth capital merits a couple more articles which go into more background on two elements.
This article describes where growth capital fits in the capital markets to help determine whether your company qualifies.
Growth capital fills the funding gap between venture capital and conventional private equity.
Growth Vs Venture Stage Company
So, what distinguishes a growth company from a venture company?
A growth company’s products or services are developed, not beta versions.
A growth company has revenues but may not yet have profits.
Customer demand is clearly evident and the prospect for further sales growth is visible.
From the investor’s perspective, investment in a growth company is much less risky than in a venture company because these critical milestones have been achieved.
Growth Capital Vs. Conventional Private Equity
How are growth investors different from conventional private equity investors?
Growth investors are willing to invest before a company reaches its full potential.
The growth investor takes the risk that the growth company, with capital and capable management, will achieve its potential.
Growth companies typically project rapid sales growth and, if the company is still unprofitable, a turn to profitability.
Valuation of a growth investment gives credit for this potential.
In contrast, conventional private equity investors value companies based on historical performance, often referred to as “looking through the rear-view mirror”.
While this is a generalization, its captures the major difference between growth capital and conventional private equity.
We believe that growth capital is an attractive source of capital.
Please contact us to discuss growth capital or any capital market projects.