Growth Capital is a term used by investors and companies looking to raise funding.
By far, investors prefer to provide Growth Capital to a company rather than Seed Capital.
Seed Capital is identified more with start-ups, and as you known the greatest risk an investor can take is providing seed capital to a pure start-up company with no track record and no sales.
Growth Capital on the other hand is associated with financing provided to an already existing company that is simply looking for growth in a market or industry that it has already entered.
The company has most likely already proven itself in the marketplace with its product or service.
Perhaps it is a small company with sales in a particular state looking to expand into several adjoining states.
Investors such as hedge funds, venture capitalists and angel investors feel more comfortable funding a company if the explanation is based on a growth capital basis, assuming there is relevant support for such a claim.
The company's management team should use factual data and evidence to support their claim, which can go a long way toward convincing potential investors that the company can use the funds for growth purposes.
Such information the management team can use to support its claim that the proceeds can be used effectively as growth capital include the following: Incremental gross and net profit figures achieved every time the company has opened another store, or hired another salesman or bought a particular piece of equipment.
Also, does the historical marketing or advertising budget support increases in gross and net profit figures? This is information that investors find very helpful in making their investment decision.
They also like acquisitions as a good use of growth capital funding.
Consider these points carefully the next time your company looks for funding.
I have advised many investors in the past and growth capital funding is at the top of their list when it comes to a company's use of proceeds.