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Investment Stage - Growth Equity

Investment Stage - Growth Equity

Definition of what we mean by Growth Equity:

The Wellness Fund seeks to be the preferred provider of growth equity capital and mezzanine capital, through our Fund and our partners’ resources, to the proactive health and wellness world by working closely and effectively with entrepreneurs to nurture and grow exceptional businesses in the UK and continental Europe. For ease of management our investment ‘zone’ will lie within approximately a half day of travel from London. We expect to invest up to 10% of the fund in venture stage companies with exceptional prospects and the majority 90% into special situations and companies in their growth equity stages with established revenues at, or within credible sight of, profitability, led by sound management teams with clear exit strategies and on their path to creating a brand.

At best, Growth Equity as a category offers the high returns of venture without the unpredictability of the “hits model” which relies on one or two big successes to deliver most of a fund’s returns. If executed correctly, growth equity can deliver returns expected from venture capital (20%+ or higher IRR) but with lower overall risk. The key skill set that differentiates growth equity managers is an ability to structure deals for both growth and downside protection. Growth equity looks for capital-efficient, proven businesses in changing markets, where a decent return can be made from organic growth. Consumer services and healthcare are key markets for this type of growth. Target companies may be cash flow positive, but often minimising taxable profits in favour of investing in growth. The best prospects have a stable growth business, plus a break-out opportunity to pursue with the new funding, such as a product spin out or a targeted acquisition. Whereas a traditional venture capitalist might expect to lose his shirt in a third of his investments, a growth equity investor shoots for a survival rate of 90% and seeks to make a positive return on a majority of his investments. This requires careful portfolio management and significant hands on support. The reward is tighter distribution of returns, which means less volatility and hence less risk. For investors seeking middle-risk strategies it is no longer good enough to divide the world into venture and buyout. Growth Equity takes the best attributes from the buyout world – tight financial management – and from the venture world – growth – to create a middle ground.

“For he who has health has hope, and he who has hope has everything.”

Owen Arthur