CytoSorbents Corporation (CTSO)

[techxen]

Growth Equity 101
What about Summit Partners, JMI or TA Associates? Ever hear about those guys? They’re all growth PE firms.

Growth equity firms invest in quickly growing companies with proven ideas/business models to help support further growth. These firms will not only provide financial capital, but also strategic guidance and operational support, so they can help the company grow and achieve its full potential.

These PE firms will generally make minority equity investments and will let the current management team continue to run the business. The capital injection can be used to scale-up operations, to enhance distribution, to expand geographically, to develop a new product, to finance an acquisition, or anything else.

Growth equity firms differ from VC firms because they target more mature companies. Many, if not most, companies here already generate revenue and are cash flow-positive – but they need additional funding to expand and hire more people.

Growth capital firms differ from buyout firms because they generate their returns by improving and growing businesses, while, as we’ll see very soon, buyout firms emphasize value creation through financial engineering and cost cutting.

Example: A growth equity firm might invest in a $30 million revenue company with $5 million in EBITDA because they see an opportunity to grow it to $60 million in revenue with $15 – $20 million in EBITDA in 3-5 years.

That company would be “too small” for most buyout firms – but “too big” or “too slow-growing” for most VC firms.

Growth equity is a very popular strategy in emerging markets since local businesses don’t always have access to capital from the domestic banking system or capital markets. In addition, the intellectual capital provided by the PE firm is often sought after because it can help companies expand globally and achieve a world-class status.