Glossary - Growth Capital
Growth capital refers to equity investments, often minority investments, in relatively mature companies looking to expand or restructure operations, enter new markets, or finance a significant acquisition without a change of control of the business. This type of capital is typically used by companies that are already generating revenues and profits but need capital to scale operations, develop new products, or expand market reach. Growth capital helps companies accelerate their growth trajectory while minimizing debt.
Also known as
- Expansion capital
- Growth financing
Use cases examples
- Term Sheet: The Company seeks to raise $20 million in growth capital to fund its expansion into new geographical markets and enhance its product line, in exchange for a 20% equity stake.
- Investment Agreement: Investor agrees to provide $15 million of growth capital to the Company, to be used specifically for the acquisition of XYZ Corp, a strategic move designed to increase the Company's market share.
Considerations for investors
- Return on investment potential - Investors need to evaluate the potential return on investment, taking into account the company's growth trajectory and market conditions.
- Exit strategy - Considering the timeline and mechanism for exiting the investment, through avenues such as an IPO, acquisition, or buyback of shares.
Considerations for founders
- Assessing the dilution of equity - Founders should consider how much of their company's equity will be given up in exchange for growth capital.
- Alignment of interests - Ensuring that the growth capital investor has a similar vision for the company and agrees on key strategies for growth.
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