Everything You Need To Know About Growth Capital

Growth capital is intended to assist companies with a proven history of commercial success in achieving their expansion goals. Investors contribute growth capital in exchange for an equity stake in the company, like other types of equity-based financing.

A minority equity investment provider is someone who makes investments in return for less than a 50% equity stake in a company. The existing shareholders can maintain control and direct the company in their preferred direction by making a minority investment with the right funding partner.

Various Forms of Growth Capital

To finance the investments required to expand your business, there are three fundamental types of capital that can be used. The most effective financing strategies frequently combine various sources of funding.

• Public Equity

Public investment capital is a valuable resource that many business owners aspire to exploit. If you succeed, the potential is enormous. However, starting an IPO to sell your company's stock on a public exchange can be difficult and expensive. If the public opinion of the value of your company differs from your own, it might not raise the money you anticipate. Only a few hundred businesses per year take this route, and the majority are valued at more than $100 million or $1 billion. • Private Equity

A portion of ownership is traded for capital in private equity, just like in public equity. Buyers can range from close friends and family who lend a hand to your business to a private equity group who buys all or part of it. Since this type of transaction is private, it can be less complicated and frequently works better for small- to middle-market companies than public equity. A private equity group may also provide you with professional advice and assistance in addition to funding. • Debt

The company is not required to give up any ownership or equity in exchange for debt growth capital. Repayment will eventually be required. Debt financing has a number of benefits and drawbacks. You'll probably start by choosing between a term loan, which gives you all of your money upfront, and a revolving line of credit, which gives you control over how much and when you borrow. In either case, you will be able to choose from a wide range of lenders, including banks, credit unions, and specialized alternative sources like asset-based lenders.

Is your company prepared to receive growth capital?

Growth capital is the best kind of financing for some businesses as it will help them advance. So how can you tell if it's appropriate for your company? Several signs that a company is a good candidate for growth capital include:

• A sound financial situation

Businesses that have a steady cash flow and are profitable or at break-even make good candidates for growth capital investments. 

• A record of expansion

Growth capital investors are likely to view your company as having high potential if you can show that it has experienced consistent growth since it first opened for business.

• One-of-a-kind value proposition

Investors seek out companies that can demonstrate a distinct advantage over their rivals or companies that have products filling glaring gaps in their target markets.

• A sound strategy for future expansion

A well-thought-out growth strategy supported by reliable financial projections is crucial for companies looking to secure growth capital.

Timing is another crucial element. Long before it is actually "necessary" to raise money, it is best to start looking for investors. Investors in growth capital don't provide "rescue capital" and are less likely to put money into a company that is having cash flow problems. Business owners should be anticipating their capital requirements, especially while they have the time and mental space to make well-considered decisions in their company's best interests.

Bottomline

Fincobox is here to support you if you are a startup or someone who needs growth capital. We offer quick, flexible, and founder-friendly funding. Contact us to find out more.