Overview of Growth Equity
Investing in privately owned, growth-oriented enterprises is referred to as growth equity. Investments sponsored by growth equity investment firms are classified into this category. The sponsoring business invests in the growth-oriented company's non-publicly traded, yet less liquid, securities.
Depending on the number of voting securities bought, growth equity investments may represent a firm's majority or minority stakes. Investments in small minority companies are common for this kind of fund.
Companies including Duolingo, Quizlet, Box, and Club Pilates have recently received minority investments from growth equity firms as part of their funding rounds. Technology, healthcare, financial services, and consumer products and services are industries these organizations have a special interest in. Financial support for a major corporate event is a common request from companies seeking development funding. Financial restructuring and expanded product development are examples of these types of changes. These initiatives may provide the groundwork for an IPO or merger in the future.
How To Prepare for a Growth Equity Interview
Growth equity interviewees should be familiar with the day-to-day responsibilities of the position and investment criteria and company-specific sector emphasis areas. Recent fundraising activity and dry powder (i.e., investor money that has not yet been utilized) show that growth equity has emerged as one of the fastest-growing divisions of the private equity market.
Investing in high-growth firms with demonstrated market traction and scalable business concepts is the focus of the growth investing approach. As a result of the financing, the firm can continue its growth plans.
WHAT ARE THE BENEFITS OF GROWTH EQUITY?
If the correct due diligence, negotiation, and execution are followed, the risk-adjusted returns of growth equity investments might be lower than those of early-stage venture capital investments.
Additionally, growth capital may be an appealing source of funding for firms looking to accelerate their sales and profitability growth by recruiting cost-effective capital and a seasoned and talented partner. Growth equity investors, like venture capitalists, aim to learn from the businesses they back. Investors in venture capital and growth equity funds typically have GPs serving on their boards or providing informal guidance. Businesses may use their investors' knowledge and expertise to enhance their operations successfully. In addition, many small business owners get the funding they need to grow their businesses.
Top Growth Equity Firms
Some of the leading “pure-play” growth equity funds include:
- TA Associates
- Summit Partners
- Insight Venture Partner
- General Atlantic
For growth equity, General Atlantic is one of the largest players. Since its founding in 1980, General Atlantic has invested in a wide range of businesses in healthcare, technology, financial services, and consumer goods. General Atlantic also has offices and investments in important growth markets in Europe, China, India, Brazil, Southeast Asia, and the United States. It has $40 billion in assets under management and has invested in Reliance Industries, Jio, Open-door and Uber/Airbnb.
Growth equity is sometimes referred to as the private investment strategy that sits in the midst between venture capital and typically leveraged buyouts. While this may be the case, the strategy has grown into more than merely an intermediate approach to private investment. Growth equity investments are expected to provide a more predictable return than venture capital. As a result, growth equity has a reduced risk of huge losses but a lower risk of large rewards than venture capital investment. Investing in growth equities has become a bright light in today's investment environment because of its distinctive risk-return profile driven by a focus on rapid operational improvements and revenue growth, minimal leverage, and downside protection.