Growth capital


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 even in the 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.

ee also

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

External links

* [http://www.hm-treasury.gov.uk/media/0/6/small_business_452.pdf Bridging the finance g
] . HM Treasury, December 2003.
* [http://strategis.ic.gc.ca/sc_mangb/stepstogrowth/engdoc/stepover/ssg-overview2.php "What is Growth Capital?", Industry Canada]
*" [http://www.altassets.com/knowledgebank/learningcurve/2003/nz3228.php Private equity and venture capital] ." AltAssets, 2003.
*" [http://www.altassets.com/knowledgebank/learningcurve/2002/nz3275.php The role of the venture capital provider] ." AltAssets, 2002.
*" [http://www.altassets.com/knowledgebank/learningcurve/2002/nz3771.php An overview of the venture capital industry] ." AltAssets, 2002.



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