Posted on: February 27th, 2019
Growth Equity is a valuable tool for growing companies, particularly those experiencing hyper growth. Growth equity is essentially venture capital for later stage, cash flow positive, high growth businesses. Typically, these companies have developed a great new product and have massive market demand, that they are challenged to satisfy with the size of their current organization.
They need to scale up their company through adding more people, creating more departments, and increasing their back end fulfilment. Capacity expansion leading to more rapid roll-out of the product in the market is the key impetus for growth equity-eligible companies.
Growth equity tends to be concentrated in high growth companies that have a tech angle to them. The barometer used by many growth equity providers is revenue growth rate of 50% or more for the past several years. Because many of these tech companies start small and then rapidly emerge, the growth equity phase is usually a great opportunity for them to catch their breath and reflect on the course of their business plan evolution.
Through assessing what you need to invest in to grow faster, you will ensure a smarter growth equity process. They key in raising growth equity is to make sure you raise all of the capital needed to get to the next level of. With any strategic plan, there are the identifiable items that are top of mind but also more subtle hard-to define areas that can make a huge difference. Here are the Attract Capital 4 top reasons to raise growth equity.
- Technology Scale up to meet national launch – many companies have developed home grown software that can operate as a platform for small scale customer use. When they go national, these systems can be highly capacity constrained. Investing in beefing up your software systems and infrastructure before a national roll-out is absolutely key.
- Business Development Acceleration – fast growth companies need high octane sales approaches – whether an internal sales team or distributors and resellers. Either approach requires time for the chosen approach to get up to speed and to cultivate market demand. Investing in your sales infrastructure is critical to being able to scale up sales rapidly and to sustain sales momentum.
- R&D Investment – most hyper growth companies already have their eye on further product innovation and are thinking years ahead of the market. This requires constant investment, especially as the company scales its sales & marketing capabilities. Using growth equity to pre-fund your R&D spend is highly advisable, given its criticality to your long term success.
- Acquisition – many high growth companies are investing and moving too quickly to conform to a cash flow lender approach. The numbers are moving too fast, and expenses can distort the true profit picture. Growth equity is a great source of funding for an acquisition. Such acquisition can bring in valuable products, capacity or human resources and be highly accretive to the scale-up strategy.