In the last 1 year, I’ve had the chance to explore both early-stage and growth-stage investments and still in the phase of greater exploration. While early-stage investments and buyouts are pretty well-known, growth-stage investing doesn’t get as much attention. It’s an intriguing area that sits between venture capital and private equity and is worth a closer look.
Growth Equity is often misunderstood in the investing space, frequently used to describe investors entering at an early stage and continuing throughout a company's growth journey. However, this is not entirely accurate. Growth equity represents a distinct investment approach that bridges the gap between venture capital and private equity, characterized by several key features:
Investment Horizon: Shorter time frame of 3-7 years
Stage of Entry: Investments are usually made at the growth stage of a company's lifecycle (Series B, C onwards) — after the initial launch and before the business reaches full maturity (https://corporatefinanceinstitute.com/resources/valuation/business-life-cycle/)
Ownership: Often a minority stake unlike high stakes in early-stage investments
Investment Decision: Driven by an understanding of both tech and financial projections
Leverage Usage: In most cases, investments involve 0% leverage unlike high leverage in buyout deals
Risk Focus: Execution risk is the primary risk underwritten, not product and market risks
Return Expectations: Unlike VCs targeting outlier returns, growth equity usually aims for more modest multiples, generally in the range of 3-5x
Return Drivers: Efficiency in operations and organic revenue growth
I also came across this amazing Spotify podcast on growth equity by Silicon Street - https://open.spotify.com/show/1HZzFmQd8YD2DkLf42pGjm?si=17c9d88c8fcb48b8
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