Venturebeat: Frontier Managing Partner Discusses “Glory Days for Growth Equity”

April 23, 2015

Despite recent claims the glory days of private equity are over, the growth equity strategy within private equity remains an attractive segment of the industry with a bright future. In a guest post on yesterday, Frontier Capital managing partner Richard Maclean highlighted why…

“The glory days for growth equity are just getting started”

By Richard Maclean, managing partner, Frontier Capital

Former hedge fund manager Andy Kessler recently published an obituary for private equity in the Wall Street Journal’s opinion pages. This piece not only mischaracterizes the private equity business model but also unfairly paints the industry with a very broad brush. Kessler’s example of private equity is limited to Wall Street-centric “mega buyouts” focused on driving returns through leverage and cost cutting. While this sector of private equity may be headed for more challenging times, there are many other flavors of private equity with a favorable outlook. Growth equity is one these lesser known strategies growing in popularity, and for good reason.

As the name implies, growth equity is a private equity business model focused on growth, not leverage. Firms in this sector don’t invest in billion-dollar startups or mega deals underwritten with leverage. A June 2013 report by Cambridge Associates, “Growth Equity Is All Grown Up” describes this strategy as, “somewhere between late-stage venture and leveraged buyouts – investing in established companies that can benefit from additional capital to accelerate growth.”

Growth stage companies typically operate in sectors growing faster than the overall economy. These businesses have proven business models, attractive revenue growth and are modestly profitable due to heavy investments supporting growth. Companies typically seeking growth capital are founder-owned with no prior institutional capital.

Read the full article for the positive trends currently underway in growth equity: