## Growth Capital

**Growth capital** (also called **expansion capital** and **growth equity**) is a type of [private equity](https://en.wikipedia.org/wiki/Private_equity "Private equity") investment, usually a [minority interest](https://en.wikipedia.org/wiki/Minority_interest "Minority interest"), 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.[1](https://en.wikipedia.org/wiki/Growth_capital#cite_note-1)

Companies that seek growth capital are often small, rapidly growing, and their assets are often [intangible](https://en.wikipedia.org/wiki/Intangible_asset "Intangible asset").[2](https://en.wikipedia.org/wiki/Growth_capital#cite_note-2) They will often do so to finance a transformational event in their lifecycle. These companies are likely to be more mature than [venture capital](https://en.wikipedia.org/wiki/Venture_capital "Venture capital") funded companies, able to generate revenue and profit but unable to generate sufficient cash to fund major expansions, acquisitions or other investments.[3](https://en.wikipedia.org/wiki/Growth_capital#cite_note-3) Because of this lack of scale, these companies generally can find few [alternative conduits](https://en.wikipedia.org/wiki/Alternative_finance "Alternative finance") to secure capital for growth, so access to growth equity can be critical to pursue necessary facility expansion, sales and marketing initiatives, equipment purchases, and [new product development](https://en.wikipedia.org/wiki/New_product_development "New product development").

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)](https://en.wikipedia.org/wiki/Leverage_(finance) "Leverage (finance)") the company has on its [balance sheet](https://en.wikipedia.org/wiki/Balance_sheet "Balance sheet").

Growth capital is often structured as [preferred equity](https://en.wikipedia.org/wiki/Preferred_stock "Preferred stock"), although certain investors will use various [hybrid securities](https://en.wikipedia.org/wiki/Hybrid_security "Hybrid security") that include a contractual return (i.e., interest payments) in addition to an ownership interest in the company.[4](https://en.wikipedia.org/wiki/Growth_capital#cite_note-4) Often, companies that seek growth capital investments are not good candidates to borrow additional [debt](https://en.wikipedia.org/wiki/Debt "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](https://en.wikipedia.org/wiki/Private_equity "Private equity") and [venture capital](https://en.wikipedia.org/wiki/Venture_capital "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](https://en.wikipedia.org/wiki/Family_office "Family office"), sovereign wealth funds, hedge funds, [Business Development Companies (BDC)](https://en.wikipedia.org/wiki/Business_Development_Company "Business Development Company"), and mezzanine funds.[5](https://en.wikipedia.org/wiki/Growth_capital#cite_note-5) Growth capital investments are also made by more traditional [buyout firms](https://en.wikipedia.org/wiki/Leveraged_buyout "Leveraged buyout"). Particularly in markets where debt is less available to finance [leveraged buyouts](https://en.wikipedia.org/wiki/Leveraged_buyout "Leveraged buyout") or where competition to fund startup businesses is intense, growth capital becomes an attractive alternative.

## Investing Approach

Growth equity investments, as defined by the National Venture Capital Association,[6](https://en.wikipedia.org/wiki/Growth_capital#cite_note-6) 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 unlevered or use light leverage at purchase.
- Investment returns are primarily a function of growth, not leverage.[7](https://en.wikipedia.org/wiki/Growth_capital#cite_note-7)