Growth Capital vs. Venture Capital

Somewhere along the line, every business needs outside funding. Whether it be to help during the startup process or to expand or restructure further down the line, obtaining outside capital enables companies to succeed. Let’s compare growth capital and venture capital, as well as the superior funding options that RevTek offers.

What is Growth Capital?

Growth capital, which is also called growth equity, involves private equity investments into a company. Usually, more developed companies seek growth capital to either expand or transform their business.

Growth capital is a form of private equity investing, which occurs when private equity firms or investors put money into a target company. Private equity investors do not want to take risks, which is why the companies they invest in have already shown success.

What Are the Disadvantages of Growth Capital?

Lose Equity: In order to receive growth capital, you will be required to give up some equity in your company. The amount of equity you give up will depend on the amount of capital you need.

Lose Control: Most PE investors also require you to give up some control. Depending on the amount of capital you need, it may be as simple as giving a board seat to a person of their choosing, or it may require losing your position as the majority owner.

Who Needs Growth Capital?

Growth capital is almost exclusively for mature companies that have already proved their profitability and have significant cash flow. Growth equity investors refrain from risking their money, which is why recipients of growth capital must demonstrate current profitability.

The size of the company also matters. According to Venero Capital Advisors, most PE firms focus on target companies valued somewhere between 10 million and 100 million dollars “for either a minority or majority stake in the target company. And it is not uncommon for the invested capital to provide some level of liquidity to current owners.”

What is Venture Capital?

Venture capital is a common way for promising startup companies to gain the finances they need to grow. Venture capital financing involves venture capitalists, who are often part of a venture capital firm, investing in a startup company.

There is a high level of risk involved for venture capital investors. They invest into early stage companies that have not demonstrated the ability to maintain solid revenue and profitability. They make their capital investment based off of the potential of the business plan.

While companies generally receive venture capital early in their growth, there are also different stages of venture capital. It could be at the seed stage, the startup stage, or several other stages where the company is already expanding and showing revenue growth.

What are the Advantages of Venture Capital?

Large amount of capital: Compared with other traditional ways of raising capital, venture capital offers the most.

Risky: While most investors require demonstrated profitability, venture capitalists are happy to invest in early stage companies that have potential. This opens doors to other ways to raise capital.

What Are the Disadvantages of Venture Capital?

Lose Equity: As with growth capital, venture capital usually necessitates giving up some equity.

Lose Control: The amount of control you lose depends on the amount of capital you need. This can range from losing your position as the majority owner, bringing in a minority owner, or simply giving up a few board seats.

Who Needs Venture Capital?

Venture capital is almost exclusively for startups and early stage companies. To obtain venture capital, all one really needs is a strong business plan with potential for significant revenue and profitability.