Growth Equity

Growth equity is an investment in already established companies that want to grow strongly. The investor usually enters as a minority shareholder and provides capital for expansion.

Unlike in a classic buyout, the investor does not take control. Target companies sit between the other two asset classes: they have a proven business model, recurring revenue and often already positive or near break-even earnings, so they are too advanced for early-stage funding but still too growth-focused and not cash-generative enough for a leveraged buyout. The capital funds sales expansion, internationalisation, product development or complementary acquisitions, and usually enters the company as a capital increase rather than going to existing shareholders. Debt plays hardly any role, so returns come almost entirely from growth rather than from leverage.

Because the investor holds a minority, the shareholders' agreement matters a great deal: consent requirements for material decisions, information rights, a board seat and tag-along and drag-along provisions secure the position without formal control. For founders and family entrepreneurs this route is attractive because it brings capital and experience without giving up entrepreneurial leadership. At the same time expectations on growth and on an exit within a few years are clearly stated and should be matched against the owner's own objectives before entering.

Whether the capital goes to the company or to existing shareholders matters in practice, because both can occur in the same transaction and the interests differ: fresh capital funds growth, while a partial sale provides the entrepreneur with liquidity and diversification. A combination of both elements is common. Expectations on the time horizon also need clarifying, since a growth investor regularly targets an exit within a few years and secures that contractually.