What is Growth Equity:

Typically, growth equity is described as a segment of the private equity industry. It is also known as growth capital or expansion capital. It aids to accelerate the growth of a company dealing with a financial crisis or stagnation in returns. Other than that it can be suitable for offering liquidity to current shareholders or fund acquisitions.

In such a set-up, investors generate earnings through stocks, guaranteed dividends or sale of shares in future. It must be noted that growth equity investments mostly pertain towards well-functioning and growing businesses. Usually, growth PE companies opt for consistent returns, as opposed to high but irregular returns. Such investments also prefer companies with a robust organisational set-up and a dependable business model or thriving sector. For instance, technology, IT services, healthcare and financials, etc. come under the purview of such sectors.

Features of Growth Equity:

The prominent characteristics of growth equity are represented in this tabulated format



The area of focus

Mature companies with an effective and sustainable business model.

Preferable companies  

Investors favour companies that are either among the market leaders or are leading in a specific sector or industry. 

Holding period

The holding period ranges between 3 years and 7 years.

Risk profile 

The risk aspect is relatively low, however, management and execution risks are still at large.

Capital requirement 

Target companies would possess either zero or negligible capital requirements in future. 

How Does It Work?

Growth equity finance is directed to companies with a proven business model. These following pointers elucidate how growth capital works -

  • To avail required funding, a company hands over a share of the business and equity.
  • Investors, who are either individuals or corporate bodies, acquire preferred security in the targeted company that is equivalent to their investment value.
  • Unlike business loans, companies do not necessarily pay off their investors for availing funds from them.
  • As repayment, the companies allow investors to benefit from the growth of the business and in turn, enable them to earn attractive returns.
  • Generally, investor avail rights like - tag-along rights and registration rights. Such rights are provided based on the scope and size of transaction. 

Experts consider raising growth equity to be a feasible option if one intends to grow the business fast and plans on seizing more market share at the earliest. Though businesses do not lose ownership, growth capital investors with a large stake in the company can influence the firm’s decision-making process. 

To avoid such a situation, businesses looking for funds may consider alternative financing options like - invoice discounting. In such a set-up, companies can raise substantial funds against their unpaid invoices at a discounted rate. It does not require individuals to transfer a portion of their ownership to investors, nor does it come with strict repayment terms like a regular business loan.

At KredX, we enable businesses to use their unpaid invoices and raise working capital within 24 - 72 hours*.

Who Should Invest In Growth Equity?

Growth capital is considered suitable for target companies that are stumbling and need some assistance. Typically, it enables company owners and management to retain a significant portion of their control. Furthermore, it helps them to reposition their company’s brand for a better prospect.

On the other hand, for investors, putting money into the growth equity of a recognised brand with immense growth potential can turn out to be quite rewarding. However, the fact that the control lies mostly with others prompts private equity investors to dedicate a small percentage of their investment portfolio towards growth capital.

Alternatively, businesses can approach KredX to raise substantial funds against their unpaid invoices and optimise their operations successfully. KredX is India’s leading integrated cash flow solutions provider who helps businesses address working capital gaps quickly.

FAQs on Growth Equity:

A. Growth capital parks money into mature companies, whereas, venture capital is directed towards start-up companies of a specific sector or industry.