Growth equity investing is a strategy that involves investing in companies that are expected to experience significant growth in the future. This type of investing is different from traditional value investing, which focuses on buying companies that are undervalued by the market
Instead, growth equity investors focus on companies that have the potential for high returns through growth in revenue and earnings.
Benefits of Growth Equity Investing
One of the main benefits of growth equity investing is the potential for high returns. Companies that are experiencing significant growth, otherwise known as momentum often have the potential to generate significant returns for investors because of their original stock price.
This is because as a company grows, its revenue and earnings also increase, leading to a higher valuation for the company. This can result in substantial returns for investors who are able to identify and invest in these growth companies early on.
Lower Risk for Investors
There’s also a lower risk for a growth equity investment typically, this is due to growth equity investments buying a small part of a company, but the shares are usually safe and have more rights than the company’s leaders. They also usually don’t use a lot of borrowed money and have extra safety measures to protect the investor.
Exposure to New Trends
Growth equity investing also allows investors to gain exposure to emerging technologies and industries. Many of the companies that experience significant growth are often in emerging industries, such as technology or biotechnology.
By investing in these companies, investors can gain exposure to these emerging technologies and industries, which can provide them with a competitive advantage in the future.
Example of Growth Investing
An example of growth equity investing would be investing in a technology startup company that is developing a new and innovative product. This company may not yet be profitable, but it has a strong management team, a clear path to revenue growth and a large total addressable market. This could be seen as a quality investment due to internal factors that are frequent of successful organizations, or quality investments
A growth equity investor would see the potential for significant returns in the future if the company is successful in bringing its product to market and scaling its business. The growth equity investor would provide the startup with capital to support the development and growth of the product, in exchange for a share in the company.
If the company is successful, the value of the company will increase, and the investor will reap the benefits through the capital appreciation of their shares.
Difference Between Growth Equity and Private Equity
Some novice investors may get confused between growth equity and private equity, growth equity investing and private equity are both types of alternative investments. However, growth equity investing is about investing in companies that are likely to grow a lot, while private equity is about buying a big part of a company and trying to make it more successful.
Growth equity investors are looking for companies that have a good chance of making a lot of money as they grow. Private equity investors are looking for companies that are not doing well but have the potential to improve.
The two types of investments have different goals and different investment strategies, and they are suited to different types of investors.
In summary, growth equity investing is a strategy that involves investing in companies that are expected to experience significant growth in the future. This type of investing offers the potential for high returns, diversification and access to emerging technologies and industries.
It’s a good investing strategy for those who are looking for higher returns and are willing to take on more risk.