Media / Investor Relations
Hess Group International Address:
J/F Kennedy Street 6 3106 Limassol, Cyprus
December 22th, 2020
Growth equity funds mostly invest in fast-growing businesses, but they also invest mature small and medium-sized enterprises (SME’s) as well as spin-offs from large corporations. These firms, typically, have high capital expenditure and high working capital requirements to sustain themselves. Since their requirements are so huge, there is little room left for free cash flow. The three target companies for a PE growth equity are listed below.
- Mature SME’s
These businesses have a clear competitive advantage against their competitors. They also have an attractive future which is a great opportunity for a growth equity investment. These companies usually have a strong market position with a recognizable brand. An investment from a growth equity fund is usually the first and only engagement for the company with a financial investor. SME’s are mostly family-owned or entrepreneur owned, thus these individuals have full control over the business as well as day-to-day operations. This is different from a late-stage VC backed company (read below), where founding entrepreneurs have given up significant equity and rights to investors in earlier fundraising rounds.
- Late-stage venture-backed
For VC backed companies which have a successful business model, in a great market position and reached profits in a stable environment, growth equity is very important. At these stages’ companies need deep pools of capital in order to execute secondary or tertiary goals. This is exactly what growth equity funds offer, which marks the transition from a start-up to a sustainable business. Growth equity funds can also keep investing in a portfolio company for several rounds, as long as they see fit to do so.
- Spin-off companies
Large corporations that are already in a very good position, can decide to divest and spin-off… growth equity investors like to invest in these types of companies. The control is typically retained within the corporation but the capital from the PE investor will spark growth and allow for other investors to enter when the corporation decides to step out. These companies are usually inadequately resourced from a funding and talent perspective and often show great results under a new funding structure outside the parent entity.
Growth equity funds usually invest in the three types of companies mentioned above. You can also read on how venture capitalists and their investment process. These investors differ depending on the stage of the portfolio company.
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Media / Investor Relations
Hess Group International
Address: J/F Kennedy Street 6
3106 Limassol, Cyprus