As a growth equity investor, Board Member of NVCA, and current Chair of the Growth Equity Member Peer Group, I am focused on advancing the growth equity asset class through education, policy, and investor community engagement. With that in mind, I wanted to provide a brief update of our recent activities.
The Growth Equity Group advocates for fair treatment for the asset class in key regulatory, policy and tax issues. We are focused on the urgent need to defend carried interest to ensure that the VC engine continues to fuel innovation.
The first two years of every presidential administration are the most active, and we want to ensure that our voice is heard during this significant time.
To provide our constituents with an opportunity to learn more about current policy issues pertinent to growth equity, NVCA and I will be hosting a reception and presentation the evening before the ILPA GP Summit on Wednesday, November 2nd in New York. Please join us to network with your growth equity peers and hear from keynote speaker Chris Campbell, Staff Director of the Senate Finance Committee. Chris will be one of the most important staffers in any major tax bill discussion and significant to our industry, and we are thrilled to have him join us. Additionally, NVCA’s Vice President of Government Affairs, Justin Field, will provide an update on what we can expect on tax, regulatory matters, and other policies affecting our industry under a new presidential administration (near-term topics include 21st century business, on-demand economy labor issues, diversity and inclusion).
In an effort to enhance understanding of growth equity as an asset class, we defined the key characteristics of growth equity investing.
NVCA and the Growth Equity Group Executive Committee (John Drew, Ken Fox, Deven Parekh, Vic Parker and Glenn Rieger) came to a consensus that most growth equity investments will have a number, if not all, of the following key characteristics:
- Company has a proven business model (established product and/or technology and existing customers);
- Company’s revenues are growing rapidly;
- Company is often cash flow positive, profitable or approaching profitability;
- Company is often founder-owned and / or managed;
- Investor is agnostic about control and purchases minority ownership positions more often than not;
- Industry investment mix is similar to that of earlier stage Venture Capital investors;
- Capital is used for company needs or shareholder liquidity;
- Additional financing rounds are not usually expected until exit;
- Investments are often unlevered or use light leverage at purchase;
- Investment returns are primarily a function of growth, not leverage, with a lower expected loss ratio than Venture Capital portfolios.
We hope this definition provides prospective portfolio companies, limited partners, and the public with an understanding of the asset class and why it is a critical component of the entrepreneurial ecosystem. Growth equity plays a vital role as a source of capital for established companies to accelerate growth. Growth capital is often used to help mature companies with product development, infrastructure, and human capital, typically facilitating job creation through these growth efforts. Additionally, growth equity addresses a funding gap for businesses that are not aligned with venture or buyout mandates.
We welcome feedback on the definition from our constituents and encourage NVCA growth equity investors to join our biannual conference call on September 20th to participate in this important discussion.
Welcome 1315 Capital!
I’d also like to take this opportunity to welcome a new growth equity member to NVCA, 1315 Capital. We look forward to engaging 1315 Capital and other growth equity firms in advancing positive impact on the entrepreneurial ecosystem through NVCA.