In each phase of a business cycle, capital is necessary. Growth capital, which can also be referred to as growth equity, is a type of financing that gives companies the money they need to continue operations. The funding can be used in various ways, including launching into new markets, acquiring new customers, investing in technology, and offering liquidity to shareholders. Growth capital is also common among mature companies that are already developed, have proved profitability, and have spotted a better opportunity in the market.
How Does Growth Capital Work?
Companies that opt for growth capital are already doing well. However, they could be struggling to raise cash for various things like buying other companies, developing new products, funding an expansion, investing in technology, and other major operational activities. There is the option of taking on debt, but the repayment can put significant pressure on the cash flow. Instead, an entrepreneur will sacrifice a shareholding in their business for growth capital to get the needed funds. Entrepreneurs can approach various organizations, including private equity firms, hedge funds, mezzanine funds, among others. Most growth capital deals include investors taking a significant role in the strategic planning of the business. Most likely, they will want one or a few seats on the board to help you increase revenue.
Benefits of Growth Capital
One major advantage of private equity investment, venture capital investment, and angel investment are that you get a good amount of money which you would not have been able to get otherwise. In addition, growth capital investors come with expertise, introducing you to a vast network of professionals that can help you grow.
Disadvantages of Growth Capital
The more capital you get, the more dilution you are also looking at. Investors may want to install their people on the board to help run the business. This means you may have to let some people go. Also, you have less say in budgeting, hiring, and other activities.
Considering that no business owner wants to give away equity, you can look into other options like debt financing and revenue-based financing.
At Aspen Capital Solutions, we understand that you want to see your company continue growing. Therefore, if you are looking for capital, contact us today. We have the solution to help push your company to the next step.