Growth Capital

What is Growth Capital?

Growth Capital, also known as expansion capital or growth equity, is a type of private equity investment made in a relatively mature company to fund its expansion plans, such as entering new markets, launching new products, or making acquisitions. It is typically provided in exchange for equity ownership, but without taking control of the company.

Purpose of Growth Capital

Growth capital is used by companies that:

• Are already profitable or close to profitability
• Do not want to take on more debt
• Want to scale operations, increase market share, or accelerate growth
• It helps them grow faster than they could with internal cash flows alone.

Key Features

Feature	Description
Stage of Company	Late-stage startups or mature businesses
Type of Funding	Equity or quasi-equity
Control	Investors usually take minority stakes
Use of Funds	For growth—not for buying out existing shareholders
Risk Level	Lower than venture capital, higher than buyouts

Common Uses of Growth Capital

• Geographical expansion
• Product line diversification
• Entering new customer segments
• Upgrading infrastructure or technology
• Strategic acquisitions

Growth Capital vs. Venture Capital

Aspect	Growth Capital	Venture Capital
Stage	Later-stage	Early-stage
Profitability	Usually profitable	Often pre-revenue
Risk	Lower	Higher
Ownership	Minority stake	Sometimes controlling stake
Purpose	Scale operations	Build operations

Investor Perspective

Growth capital investors seek:

• High-growth companies with proven business models
• Strong management teams
• Clear exit strategies like IPOs or acquisitions

They earn returns through:

• Equity appreciation
• Eventual exit from the investment (e.g., IPO, strategic sale)

Examples in the Indian Context

• OYO receiving late-stage funding from SoftBank to expand globally
• Byju’s raising growth capital to enter international markets
• Zomato receiving expansion capital before its IPO