5min
Module 1: The Funding Landscape
Module 2: The Pre-Seed and Seed Stage
Module 3: The Series A Stage
Module 4: Later Stage Funding (Series B and Beyond)
Module 5: The Fundraising Process
11/16 Lessons
Content
Assignment
1. Growth Equity: Fueling the Fire
Growth equity firms invest in mature companies that are already generating revenue and are profitable or near-profitable. Their goal is not to fund a risky idea, but to provide capital that can accelerate an already successful business.
How They Invest:
They take a minority stake in a company, typically without seeking a controlling interest.
What They Look For:
They focus on companies with a proven business model, a strong market position, and a clear path to becoming a market leader. The funding is used to expand sales, enter new markets, or make strategic acquisitions.
Example: Spotify received significant growth equity funding from firms like TPG. At this stage, Spotify had already proven its music streaming model and needed large amounts of capital to expand globally and compete with other giants in the industry.
2. Private Equity: Acquiring and Optimizing
Private equity (PE) firms operate on a different scale. They often acquire or take a controlling or majority stake in a company, with the goal of improving its operations and financial performance over a period of 3-7 years before selling it for a profit.
How They Invest:
They use a mix of their own capital and borrowed money (leveraged buyout) to purchase a company.
What They Look For:
They are primarily interested in companies with stable, predictable cash flow and a clear path to operational efficiency. Their goal is to maximize the company's value through operational changes, not necessarily through innovation.
3. Founder's Perspective: Questions to Ask
When approached by a growth equity or private equity firm, it’s crucial to understand their intentions and how they will work with you. Ask questions like:
"What is your investment thesis for my company?" This helps you understand their specific plan for your business.
"What is your track record of working with founders after an investment?" This gives you insight into whether they will be a collaborative partner or a hands-on manager.
"What resources can you provide beyond capital?" Growth equity firms often have networks and expertise that can be very valuable.
4. VCs vs. Growth Equity vs. Private Equity
Stage
Risk
Goal
Stake
Venture Capital
Pre-Seed to Series A
High
Fund high-risk innovation
Minority
Growth Equity
Series B and beyond
Medium to Low
Accelerate proven growth
Minority
Private Equity
Mature, profitable businesses
Low
Acquire and optimize for profit
Majority or controlling