Growth Equity

Growth equity occupies the middle of the private capital spectrum. Venture capital funds product and market risk in pre-revenue or early-revenue companies and accepts that most investments fail. Leveraged buyouts acquire control of mature, cash-generative businesses and use significant debt to juice returns. Growth equity targets companies that have already cleared the venture hurdle — clear product-market fit, rapid revenue growth (often 30%+ year over year), and a repeatable go-to-market motion — but that still need capital to scale and are too small, too unprofitable, or too high-growth for a control LBO. The classic profile: a $50M-revenue SaaS company growing 40% a year, roughly breakeven, that wants $30M to hire 100 salespeople. Firms like General Atlantic, Summit Partners, TA Associates, Insight Partners, and the growth arms of KKR and Blackstone live here.

Growth equity checks are usually minority stakes (10%-40%), almost always primary capital (cash goes onto the company balance sheet to fund growth) or partial secondary (buying shares from early employees/investors to give them liquidity), and use little or no debt. Because the firm doesn't take control, it relies on contractual rights instead: a board seat, liquidation preference (typically 1x non-participating preferred), anti-dilution protection, pro-rata rights, and protective provisions (consent rights over new debt, sales, big hires). The instrument is convertible preferred stock — downside protection of debt plus upside of equity. Founders keep operational control, which is why growth equity is sometimes pitched as 'founder-friendly' relative to a buyout.

An LBO return is driven by three levers: EBITDA growth, multiple expansion, and debt paydown. Growth equity removes the leverage lever almost entirely — there's little debt to pay down — so returns are driven overwhelmingly by revenue/EBITDA growth, with some multiple expansion as the company de-risks and scales. That makes underwriting fundamentally a growth-durability question: how long can this company compound, and is the growth efficient (good LTV-to-CAC and improving margins) rather than bought with cash? Target returns are typically 3-5x MOIC on winners with a roughly 20-30% IRR gross. Loss rates are lower than VC (the company already works) but upside per deal is lower than a home-run venture bet.