Growth equity is also referred to as growth capital or expansion capital. This form of equity investment into private companies has emerged as an increasingly common form over the past few years.
By definition, growth equity deals generally consist of investments into relatively mature (usually five years or older) companies that have the following characteristics:
1. are revenue-generating;
2. are growing; and
3. are often profitable or nearing profitability.
Private companies who utilise growth equity funding initiatives are often doing so in order to fast-track an expansion of their operations through mergers and acquisitions and/or to make other internal investments to accelerate growth. Also, growth equity deals involve such companies taking on their first institutional investment (this is a general trend but not always the case).
Characteristics of both venture capital and private equity have often been associated with growth equity financing. This is mainly because of the nature of the companies being technology-based and also being more mature and stable.
Nowadays, a plethora of investor types participate in growth equity deals ranging from hedge funds and venture capital firms to specific growth equity firms and private equity investors.