Growth equity firms invest in businesses with proven business models and predictable client acquisition tactics, sometimes called development or expansion capital. Equity funds are mutual funds that invest primarily in the stock market. There are two types of equity funds: active and passive. An active fund manager keeps tabs on the market, researches firms, evaluates their performance and seeks investment opportunities. Moreover, Equity Funds may also be separated by Market Capitalization, which is the total value of a company's equity in the capital market. Funds may be classified as large, midsized, minor, or microcap. Multidisciplinary or Sectoral / Thematic may also be subclassified. Investors may choose to put their money into whatever sector or topic they like, such as biotech or infrastructure in the first case, or they can choose to put their money into companies throughout the whole market range. On the other hand, an equity fund primarily invests in business stock and strives to offer individual investors the advantages of expert management and diversity.
Growth Equity: Purpose
To increase its revenue and profitability by expanding its activities, gaining access to new markets, or making acquisitions, firms need growth capital. As a result of their investments' potential growth and minimal risk, growth equity investors gain. Minority interests are common in growth equity agreements. Preferred stock is routinely used in these types of transactions. Growth equity investors favor firms with little or no debt, and they prefer companies with low or no obligation. Private equity companies, late-stage venture capitalists, and investment funds mutual or money managers are typical growth equity investment profiles, as are they.
Investment Structure for Growth Equity
Investors often do not have a great deal of say in the strategic decision-making affecting their portfolio companies. A favorable investment outcome can only be achieved if the following three components are in place for the investor: Growth equity differs from buyouts in that the management team retains an active role and other investors who contributed in previous investment rounds are more prevalent. In contrast to buyouts, operational and strategic decisions remain mainly in the hands of management. By making a final investment, a growth equity firm gains either freshly issued shares in the business or existing shares previously owned by shareholders who regarded the growth capital investment as a way to cash out. A growth equity firm can't influence the course of the business or management judgment because of its structure.
Growth Equity Investor
At this vital juncture, having access to a comprehensive set of operational resources is just as essential as growing effectively and overcoming the inevitable blocks. Growth equity firms may set themselves apart from other investors by becoming more than simply a source of finance.
There is a change in focus for growth equity to the risk of failure, referred to as execution risk. A close competitor's product offering that is identical to yours may be the source of your loss of market share. Execution risk is also present in private equity, although lesser. Instead, because of the high level of leverage, the primary concern is the possibility of a default on a loan. There may also be more market upheaval and competition for older enterprises. In theory, growth equity companies can invest in whatever area they want, although their capital allocation tends to be tilted towards software and industries like consumers goods and health to a smaller extent. Unlike control buyouts, confined to well-established businesses, venture capitalists invest across practically every industry.