Posted on: January 4th, 2022
Growth Capital is widely available in the middle market under a host of different names. Each growth capital provider approaches the investment differently with a unique perspective and funding methodology.
Companies seeking growth capital often come to learn this mid-stream in their process after they have invested considerable time. Having prior knowledge as to the unique markers of each growth capital provider is an asset for growth capital-hungry companies. This allows the company to tailor their search to the growth capital providers more likely to be interested in funding them, resulting in a high impact process and a faster close.
How to Approach a Growth Capital Raise
The best way to approach a growth capital raise is to adopt a multi-segmented approach to the process, relying on the advice and process of a growth capital expert. The raise requires keen appreciation of the growth capital provider market and their industry and growth rate preferences. For example, some growth capital providers fund loss making companies who will not become profitable for several years. These providers assume there will be future capital raises to extend the company’s capital runway, based on achievement of valuation milestones. Other growth capital providers need the company to be consistently cash flow positive which often translates into accretive EBITDA growth such as acquisitions. Each growth capital purveyor has their own risk-reward profile, asset management and risk mitigation approach.
The key to lighting your growth capital path is understanding how the market views you and your proposed form of growth. Tech-oriented investors will not consider a manufacturing roll-up regardless of how attractive it is. Conversely, mezzanine lenders will not fund a loss-making rocket ship of a tech company, regardless of how lofty the proposed returns are. By understanding how the market views you and your scale-up plan, you can move quicker through your process and approach higher probability investors. When you tap into the expertise of a growth capital advisor, they will light your path and lead you to the best groups for growth capital.