Knowing the Importance of Growth Capital in a Business Cycle
Posted on Wednesday, April 27th, 2011 at 10:40 pm.
Most often a high-growth and mature companies look for funding to increase their profit, to expand, to restructure operations through organic approach, to enter new markets, or to finance a significant acquisition without a change of control of the business. These companies seek for growth capital to finance a major transformation of their business.
Growth capital is a form of private equity investment in a late-staged level of a business life. Financial institutions tend to provide this capital to businesses who are able to generate revenues and operating profits, and to those companies who have already reached a stable point where they are capable of exploring opportunities or expansion but unable to generate sufficient funds. Financial firms who provide growth capital support businesses that have market leadership potentials.
Growth capital is also known as growth equity and expansion capital. It exists at the intersection of private equity and venture capital and it is provided by a variety of sources. Companies who seek for growth capital are likely to be more mature than venture capital funded companies because they have already established their revenues that are already proven in markets or industries. Because of insufficient funds these companies generally can find alternative conduits to obtain capital for growth and expansion.
Growth capital is often structured as either Common equity – a type of capital used to directly absorb losses; or Preferred equity – a measure of equity which only takes into account the preferred stockholders, and disregards the common stockholders. While other investors also use various Hybrid securities that include a contractual return such as interest in payments, in addition to an ownership interest of the company. Hybrid securities are group of securities combining debt and equity, the elements of the two broader groups of securities. It behaves more like fixed interest securities while others behave more like the underlying shares into which they convert.
There are numbers of dedicated growth equity firms around the United States that can provide the financial needs of your business development. The amount of capital that can be produced would range anywhere from $2 million to $100 million, depending on the firm and whether they would take a majority or minority investment in your company. Since this type of financial service involves a great amount of capital, therefore it is best to partner with financial firm who have time-tested and battle-hardened fund raising techniques, who do not just provide you financially but coaches you as well, and most importantly, who delivers service with the highest sense of integrity.