Growth capital

Growth capital (also "expansion capital" and "growth equity") is a type of private equity investment, most often a minority investment, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a significant acquisition without a change of control of the business.

Companies that seek growth capital, will often do so in order to finance a transformational event in their lifecycle. These companies are likely to be more mature than venture capital funded companies, able to generate revenue and operating profits but unable to generate sufficient cash to fund major expansions, acquisitions or other investments. Growth capital can also be used to effect a restructuring of a company's balance sheet, particularly to reduce the amount of leverage (or debt) the company has on its balance sheet.

Growth capital is often structured as either common equity or preferred equity, although certain investors will use various hybrid securities that include a contractual return (i.e., interest payments) in addition to an ownership interest in the company. Often, companies that seek growth capital investments are not good candidates to borrow additional debt, either because of the stability of the company's earnings or because of its existing debt levels.

Providers

Growth capital resides at the intersection of private equity and venture capital and as such growth capital is provided by a variety of sources. While there are a number of dedicated growth capital firms, growth capital investments are also made by late-stage venture capital investors as well as more traditional buyout firms. Particularly in markets where debt is less available to finance leveraged buyouts or where competition to fund startup businesses is intense, growth capital becomes an attractive alternative.

See also

• Private equity
• Venture capital
• Mezzanine debt
• Hybrid security
• Convertible bond
• Preferred stock

External links

• Bridging the finance gap: next steps in improving access to growth capital for small businesses. HM Treasury, December 2003.
• "What is Growth Capital?", Industry Canada
• "Private equity and venture capital." AltAssets, 2003.
• "The role of the venture capital provider." AltAssets, 2002.
• "An overview of the venture capital industry." AltAssets, 2002.

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v • d • e Topics on private equity and venture capital Basic investment types Buyout • Venture • Mezzanine • Growth • Secondaries • Equity co-investment History History of private equity and venture capital • Early history of private equity • Private equity in the 1980s • Private equity in the 1990s • Private equity in the 2000s Terms and concepts Buyout Financial sponsor • Management buyout • Divisional buyout Venture Seed money • Startup company • Angel investor • Venture capital financing • Pre-money valuation • Post-money valuation • Venture round • Venture debt • Bootstrap funding Structure Private equity firms and funds • Limited partnership • Limited liability company • Carried interest  • Management fee • Publicly traded private equity ( Business Development Company, Venture Capital Trust) • Private Investment in Public Equity (PIPE) • Pledge fund Investors Institutional Investors • Pension funds • Insurance companies • Fund of funds • Endowments • Foundations Investment Banks • Commercial Banks • High net worth individuals • Family offices • Sovereign wealth funds Related financial terms Undercapitalization • Initial Public Offering (IPO) • Mergers and acquisitions • Leverage • High-yield debt • Capital structure • EBITDA Private equity and venture capital investors • Private equity firms • Venture capital firms • Portfolio companies