Growth capital resides at the intersection of private equity and venture capital and as such growth capital is provided by a variety of sources. The types of investors that provide growth capital to companies span a variety of both equity and debt sources, including private equity and late-stage venture capital funds, family offices, sovereign wealth funds, hedge funds, Business Development Companies (BDC), and mezzanine funds. Growth capital investments are also made by 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. everybody knows and gets excited about it.
Growth equity investments, as defined by the National Venture Capital Association, feature the following:
· Company’s revenues are growing rapidly.
· Company is cash flow positive, profitable or approaching profitability.
· Company may be founder-owned and often has no prior institutional investment.
· Investor is agnostic about control and purchases minority ownership positions more often than not.
· Industry investment mix is similar to that of venture capital investors.
· Capital is used for company needs or shareholder liquidity and additional financing rounds are not usually expected until exit.
· Investments are not leveraged or use light leverage at purchase.
· Investment returns are primarily a function of growth, not leverage.
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