Guide to Growth Equity Firms
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What is Growth Equity?
How Growth Equity is Structured
What Growth Equity Invests In
A revenue growth rate that is on the fast track A business model that favors technology-based goods and services A demonstrable customer base Robust cash flow and little or no company debt The founders are still with the company The ability to easily invest in the company as a minority partner
How Does Growth Equity Work?
Pros and Cons of Growth Equity
Pros of Growth Equity
Offers an infusion of capital that can help an early-stage company buy new equipment, expand production facilities, research and develop new products, and begin new marketing campaigns. Investors may bring significant experience and new contacts to the business that can help to fuel growth beyond the capital they invest. Unlike debt financing, equity growth does not require making regular fixed payments. Returns are paid based on the needs and growth of the company, rather than according to a fixed schedule.
Cons of Growth Equity
Due to the minority interest and lack of a guaranteed rate of return with growth equity, it can be difficult to find a growth equity firm willing to invest in your company. A company generally needs to have a strong track record and be able to submit a large amount of data and research in order to secure a growth equity investment. Bringing in new stakeholders can lead to potential conflicts. Plus, there is no guarantee that growth equity investors will have experience in the company’s industry.
Growth Equity vs Venture Capital
Growth Equity vs Private Equity
Growth Equity Investment in Your Business
Capital structure optimization Mergers & acquisitions (M&A) IPOs Professionalization of internal processes Business development Market expansion Connections to Institutional investors, lenders, and investment bankers
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