What is Growth Capital?

Growth capital, also referred to as growth equity or expansion capital, is an investment in a company already generating sales and that needs capital to help grow its business by expanding into new markets, increasing its operations, making acquisitions, or developing its products or services without undertaking a buyout or venture capital risks.

Who is Growth Capital for?

Growth capital investment is generally used by companies that:

• Have demonstrated proof of concept and generate some profit or revenue 
• Are beyond the risky startup stage, but are not yet mature enough or willing to go for an IPO or the sale of the entire firm
• Require capital for one particular business development opportunity – not rescue financing
• Would like to raise funds without losing the majority ownership, as opposed to a normal private equity buyout

The most important factor that sets growth capital apart from all other types of financing is that it’s intended for companies that are up and running and need to grow.

How Growth Capital Financing is Typically Structured?

• Small shareholdings: Typical holdings are around 10% to 40% ownership, not majority control
• Preferred equity is common, with investors having specific investor rights (board representation, liquidation preference, right to receive information) without control
• Growth debt or convertible structure may be used alongside the equity investment, and this is a mezzanine-type financing instrument that is less dilutive than straight equity
• Use of funds criteria: Often investors would like to see a specific plan for how the money will be used (e.g., “We are going to use $20M for opening five new regional offices.”)
• Board representation: Investors are normally involved at the board of directors level, although the founders retain operational control

Want Help With Your Finance and Business Operations?

Atidiv helps growing businesses streamline finance and accounting processes with reliable, technology-enabled solutions designed around their unique needs. With expertise in accounting support, financial reporting, back-office management, and process improvement, our professional team can help you achieve greater precision and efficiency across your business’s financial operations.

If you need assistance with simplifying accounting, improving your financial processes, or scaling your operations, Atidiv can help. Contact our team to see how we can help you with our finance and accounting services.

Talk to our expert!