YOUR GROWTH EQUITY PARTNER
Growth Equity is defined as acquiring interests in later-stage companies exhibiting high growth, to fund their plans for continued expansion.
The Difference
Often referred to as growth or expansion capital, Mitchell Capital seeks to invest in companies with established business models and recurring customer acquisition strategies.
| Venture Capital (VC) | Growth Equity (GE) | Leveraged Buyouts (LBOs) | |
|---|---|---|---|
| Lifecycle | Early-Stage | Late-Stage | Mature |
| Investment Type | Minority Stake | Minority Stake | Minority Stake |
| Return Drivers |
“Top Line” Revenue Growth New Customer / User Acquisitions Product Validation |
Substained Revenue Growth Operating Margin Expansion Multiple Expansion (Revenue-Based) |
Deleveraging (i.e., Debt Paydown) Operational Improvements Multiple Expansion (EBITDA-Based) |
| Investor Base |
Angel Investors Seed-Stage Investors Early-Stage VC Firms |
Growth Equity Firms GE Divisions of Investment Firms Family Offices |
Buyout Private Equity Firms Institutional Asset Managers Family Offices |
| Profitability | Pre-Revenue -> Pre-Profit | Pre-Profit -> Slightly Profitable | Stable Profit Margins |
| Holding Period | 5 to 10 Years | 4 to 7 Years | 3 to 6 Years |
| Leverage Use | 0% | 0% (or Low Single-Digit %) | 50% to 85% |
| Venture Capital (VC) | |
|---|---|
| Lifecycle | Early-Stage |
| Investment Type | Minority Stake |
| Return Drivers |
“Top Line” Revenue Growth New Customer / User Acquisitions Product Validation |
| Investor Base |
Angel Investors Seed-Stage Investors Early-Stage VC Firms |
| Profitability | Pre-Revenue -> Pre-Profit |
| Holding Period | 5 to 10 Years |
| Leverage Use | 0% |
| GROWTH EQUITY (GE) | |
|---|---|
| Lifecycle | Late-Stage |
| Investment Type | Minority Stake |
| Return Drivers |
Substained Revenue Growth Operating Margin Expansion Multiple Expansion (Revenue-Based) |
| Investor Base |
Growth Equity Firms GE Divisions of Investment Firms Family Offices |
| Profitability | Pre-Profit -> Slightly Profitable |
| Holding Period | 4 to 7 Years |
| Leverage Use | 0% (or Low Single-Digit %) |
| LEVERAGED BUYOUTS (LBOS) | |
|---|---|
| Lifecycle | Mature |
| Investment Type | Minority Stake |
| Return Drivers |
Deleveraging (i.e., Debt Paydown) Operational Improvements Multiple Expansion (EBITDA-Based) |
| Investor Base |
Buyout Private Equity Firms Institutional Asset Managers Family Offices |
| Profitability | Stable Profit Margins |
| Holding Period | 3 to 6 Years |
| Leverage Use | 50% to 85% |
GROWTH EQUITY — EXPANSION CAPITAL INVESTMENT STRATEGY
Growth equity is intended to provide expansion capital for companies exhibiting growth trends.
Most early-stage companies eventually need assistance either in the form of an equity investment or operational guidance.
Mitchell Capital invests in companies that have already obtained traction in their respective markets but still need additional capital to reach the next level.
Our investments, in most cases, have moved past the early-stage classification yet retain substantial upside potential in terms of “top line” revenue growth, available market share, and scale.
With a growth equity investment, growth-stage companies can sustain or accelerate their growth trends by further disrupting and establishing defensible market positions.
Mitchell Capital invests in companies with proven business models that need the capital to fund a specific expansion strategy as outlined in their business plan.
Like early-stage startups, these high-growth companies are in the process of disrupting existing products/services in established markets.
Validation of Product-Market Fit
Proven Business Model
Pathway Towards Profitability
Target Market and Customer Profile Identified
The types of companies well-suited for Mitchell Capital growth equity plan have these characteristics:
PLANNED USAGE OF
CASH PROCEEDS
Growth stage companies that receive funding should have a target plan specifically outlining the allocation of spending (i.e., re-investment areas, unfunded growth opportunities)
REPEATABLE, SCALABLE, CUSTOMER ACQUISITION STRATEGY
On a smaller-scale, companies deserving of growth capital should have gradually established a scalable customer acquisition process with operational “best practices”
SIGNIFICANT MARKET
OPPORTUNITY
For customer acquisition strategies to yield the targeted output, the prerequisite is adequate market demand to warrant an investment in the first place
PARTNERSHIP IN GROWTH EQUITY
A key difference between growth equity and buyouts is the active role retained by the management team, as well as the prevalence of other investors that invested in earlier funding rounds. Unlike buyouts, the strategic and operational decisions remain primarily with management.
Once a growth equity firm has completed an investment, it now owns a stake in the company in the form of newly issued shares (or existing shares of prior shareholders who viewed the growth capital investment as an exit strategy).
A partnership based on trust is required to ensure the management team can be relied upon to take the company to the next state of growth.
Growth Equity
Delivering thoughtful growth equity to companies that need capital and strategic guidance to help shape their business.
Extensive Network
Our network of industry contacts fosters a community that powers and supports the growth of our investments.
Acquisitions
We partner with innovative, tech-enabled companies looking for more than capital… but a new strategic approach to quantify growth initiatives.
Investments
Mentorship, leadership, and resources to help scale and grow companies.
Strategic Management
We utilize benchmark identification, financial and human capital, and leadership experience to successfully achieve growth.
Empowerment
We provide growth capital, real-world experience, and a network of industry connections to management teams looking to drive significant change in the segments they serve.
MITCHEL CAPITAL VALUE-ADD
The more value a we can contribute to the portfolio company, the more weight its suggestions carry in board meeting discussions.
At the commercialization stage, money is not the only thing these companies need.
Just as important is being offered access to a full suite of operational resources to help scale efficiently and navigate inevitable obstacles at this critical inflection point.
The differentiating factor that can make a Mitchell Capital stand out is its capacity to be more than just a capital provider along for the ride.
Value-Add Opportunities
Capital Structure Optimization – E.g., Debt Financing
Mergers & Acquisitions (“M&A”)
Initial Public Offerings (“IPOs”)
Relationships with Institutional Investors, Lenders, Investment Bankers, etc.
Business Development and Go-to-Market Strategy Planning
Market Expansion and Customer Cohort Analysis
Professionalization of Internal Processes (e.g., ERP, CRM)
ALIGNED INTERESTS IN GROWTH EQUITY
Mitchell Capital invests at a time when the company has already accomplished a certain level of success. Due to this timing, the investment is meaningful to management since the market potential and product idea has already been validated but additional strategy, resources and growth capital is needed to accelerate growth.
Establishing trust with the management team and key stakeholders is the prime objective for Mitchell Capital.
Before proceeding with obtaining an equity position, Mitchell Capital must gather information regarding the near-term and long-term goals of management (and influential shareholders).
Amongst the management team, the key stakeholders, and Mitchell Capital, there must be an understanding and general consensus on:
- The portfolio company’s estimated market share that can be reasonably attained
- The pace of growth at which the company should attempt to expand
- The amount of capital required to fund the plans for growth
- The planned exit strategy
The purpose of doing the growth strategy is to meet the growth equity fund’s threshold.
GROWTH EQUITY VS. VENTURE CAPITAL & BUYOUTS
In terms of the risk/return profile, growth equity sits right in between venture capital and leveraged buyouts (LBOs):
VC
VENTURE CAPITAL
- The funds are intended to test for product-market fit (i.e., the viability of the idea) and product development
- Most of the portfolio is expected to fail, but the return from a “home run” can offset all those losses and enable the fund to achieve its targeted returns (i.e., tail-heavy distribution)
LBOs
LEVERAGED BUYOUTS
- The use of debt is one of the primary return drivers – therefore, the fund attempts to minimize the required equity contribution
- Differs from growth equity in that most, if not all, of the target’s equity, is acquired post-LBO
GROWN EQUITY VS. VENTURE CAPITAL
Early-stage companies usually see growth rates near or far above 30%, whereas growth-stage companies grow at a rate around 10% and 20%. The exponential growth seen at the onset gradually slows down; nevertheless, revenue growth is still a double-digit figure at this point.
GROWTH EQUITY VS. LEVERAGED BUYOUTS
The returns from a growth equity investment come predominantly from the growth of the equity itself.
In contrast, a sizable portion of the returns from leveraged buyouts is generated from financial engineering and the paydown of debt.
Thus, the most notable differentiation between growth equity and LBOs is that LBOs focus on the usage of debt to achieve its required returns.
Mitchell Capital rarely use debt. If the capital structure has any leverage at all (most often in the form of convertible notes), the amount is negligible in comparison to the amount utilized in LBOs.
Another significant difference is that private equity firms acquire majority stakes in companies, and their investment thesis does not necessarily include rapid growth. PE firms often just need the portfolio company to perform in line with its historical performance to achieve its required returns.
Like venture capital, differentiation is a key factor in growth equity, and both are centered around “winner-takes-all” industries that can be disrupted through products that are difficult to replicate and/or proprietary technology.
Private equity also has exposure to execution risk but to a lesser degree. Instead, the main consideration is the credit default risk due to the amount of leverage used.
Additionally, mature companies (as targeted by private equity / LBO firms) may be subject to increased market disruption risks and external competition (i.e., targeted by new entrants).
Mitchell Capital can invest in any industry of their choosing, but the allocation of capital tends to be skewed towards mostly SaaS and Technology Enabled Service companies.