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In the game of Monopoly, every player’s goal is to acquire the most land, money and potential for revenue. As you go around the board, you’re hoping to pick up more properties and as other players move around the board, you’re hoping that they land on your properties so that they must pay you for the privilege. Acquisition is an important element of growth, and the intent of every business is also to grow. When a business has proven itself to be profitable and sustainable and has established staying power, it might be acquired by another entity. Growth equity investment is the application of this principle.
What Is Growth Equity?
Growth equity is the practice of acquiring shares in companies that have exhibited strong growth patterns. Peter Comisar employs the principles of growth equity when conducting business with Story3 Capital. The acquisition usually occurs at the mature point in a company’s life cycle, when it is ripe for a leveraged buyout.
When growth equity firms are looking to invest, they are looking to buy companies that have established themselves with profitable business models and transferable customer acquisition methods. These firms are looking to help companies who’ve established themselves as viable, though still in need of capital to continue to grow.
When a growth equity firm is researching potential companies to invest in, they must examine not only what the company has done, by what it intends to do. It needs to see an expansion strategy that has been outlined in the business plan. Other factors that the firm looks at are the pathway toward profitability and validation of product-market fit.
How Does an Influx of Capital From Growth Equity Firms Help Other Companies?
The proceeds from growth capital investment could fund several things. It could bolster marketing and advertising campaigns or be used to hire more sales representatives. It could be made available to address back-office needs. It might also be used to develop services or products. It certainly can assist with an expansion into new markets, and thus potentially to recruit new clients.
As the growth equity stake is usually a minority stake, firms look for certain elements to be in place in order to continue to generate capital. The firm is seeking a kind of partnership in which ideas can be exchanged between management teams. The growth equity firm is also offering operational resources, as well as funds.
Growth equity firms aim to make money by improving the state of the companies that it invests in, even though they are already proven in the marketplace. These firms bring to bear not only finance but ideas and resources to help the company to flourish.