Even as the economy improves, many business owners are still struggling to find the capital needed to grow their businesses.
There are many sources of capital beyond traditional banks, and each has its own advantages and disadvantages. Today, the dollar amount of private equity and growth capital raised by funds and seeking investment is in the hundreds of billions. The terms “private equity” and “growth capital” have different meanings to different groups, and it's important to know how this pool of capital could potentially help your business.
Growth capital traditionally facilitates business activities that do not change the control of the business. Funding acquisitions, capital expenditures and general operational expansions are common uses of growth capital. Investments into your company may take the form of minority equity positions, subordinated debt, warrants, non-bank equipment loans, bank loans, private debt and many other varieties.
The world of growth capital providers is quite large (more than 200 supplying mezzanine/subordinated debt financing alone). Some receive funding from the government, some are divisions within the world's largest banking institutions, and some are private companies with a handful of partners managing a fund in your region of the country. It is important to determine what form of growth capital best suits your business, and who will work with you best to achieve your goals.
Private equity generally entails giving up a significant amount of ownership — often selling a controlling interest. There are more than 2,000 private equity firms in the United States, backing over 14,000 U.S. companies. Many private equity firms interested in middle-market companies tailor their strategies to enable business owners to capitalize on another stage of growth for their company. By retaining a minority equity position, owners are able to diversify the wealth generated by their business and participate in the growth generated throughout the private equity investment period.
Finding the best private equity firm or finance provider for your goals may be the most important decision you will make as a business owner. Identifying a group with a similar portfolio company, or past success with one, is a good first step. To learn more, contact your investment banker or M&A advisor