Growth Equity or Private Equity: Finding the Right Investor

The characteristic features of growth equity

Growth equity investors typically take a minority stake, leave control with existing management, and focus on helping the company scale an already-proven business model.

These investors usually want less operational involvement; their main expectation is regular reporting and tracking milestones tied to growth targets.

The different approach of control-oriented private equity

Control-oriented private equity funds typically demand a majority stake and expect an active voice on the board, in some cases even direct involvement in operational decisions.

This approach can be valuable especially for companies that need operational transformation or professionalization, but it also brings a risk of loss of control for the founder.

The importance of matching time horizons

Growth equity investors typically operate on a five- to seven-year horizon, while some private equity funds target a shorter, three- to five-year exit timeline.

If the company's own strategic plan doesn't align with that horizon, tension can build between investor and company over exit timing down the road.

Sector-specific preference differences

High-growth companies that haven't yet reached profitability are usually more attractive to growth equity investors, while mature companies generating stable cash flow are the more natural target for control-oriented funds.

This isn't a hard rule, but identifying early which investor pool the company should target significantly improves the efficiency of the process.

The growing use of hybrid structures

An increasing number of deals use hybrid structures that combine a minority growth-equity stake with certain governance rights (such as veto rights); these structures aim to balance the advantages of both worlds.

When negotiating such a structure, it's essential to clearly define upfront which decisions require board approval and which thresholds trigger a veto.

Frequently asked questions