In this article, we’ll look at the importance of business growth capital for South African entrepreneurs in growth stage businesses. We also considder the various forms it can take and the circumstances in which it’s employed by entrepreneurs and business owners.
Mature organisations can use business growth capital to scale up, increase income, and expand their consumer base. This article looks at the type of businesses which might benefit from growth funding.
Where does business growth capital fit in the business funding landscape?
Development capital, also known as growth capital, is money given to a firm in order for it to expand and flourish. A wide range of tactics can be used to accomplish this growth. As a business owner or team, you might already have a clear idea on how to grow. Among them are buy and build, new service development, and domestic or international expansion, to name a few.
Over the years we have seen that business owners often have a limited view of the growth options available to them. In addition to our support in assisting businesses to access business funding, we typically also provide additional support to our clients in considering business growth strategies. Caban Investments and other development capital investors take pride in delivering advantages that go beyond money. This could involve strategic or operational advice, as well as assistance in identifying non-executive directors for a company’s board of directors.
Because the major goal of development money is to secure long-term growth rather than provide a quick return to the investor, it may be considered patient capital. Some development capital investors are minority equity investors, meaning they make investments in exchange for less than a 50% ownership position in a company.
A minority investment permits a company’s current management team to continue driving the company’s growth in the way they see fit.
Consider the following scenario. You’re in charge of a company and have a solid client base and team. You’re making a good profit because of them. You, on the other hand, are ambitious and want your company to expand even more. Assume you want to double the size of your company in two years. The difficulty is that, based on current projections, achieving such growth will take more than ten years.
You want to find a way to accelerate your growth. Perhaps you might build a new location in a different region, grow into a new product line, or, better yet, acquire a competitor who is already in the business you want to be in.
However, you’ll need investment and help to accomplish those dramatic improvements at a rapid rate. It could be time to think about raising funds for expansion.
What is the definition of business growth capital?
Business growth capital, in its broadest meaning, is money used to help you expand your business. This investment or injection of capital, on the other hand, could come in a variety of forms and on a variety of terms. We’ll focus on business growth capital that comes in the form of equity investment for the purposes of this download. Along with long-dated loan notes, this is one of the sorts of investments we offer at Caban Investments, and we believe it’s a good fit for a lot of high-potential, medium-sized enterprises. 
The term “equity investment” refers to money given to you in exchange for a stake in your company. Unlike a bank loan, equity investing does not need you to pay interest on a regular basis. It’s a simple swap. An investment of R10 million, for example, would entitle the investor to a 25% ownership stake in the company.
What types of firms are good candidates for business growth funding?
For some firms at a certain stage of development, development capital is the best way to get them to the next level. Early-stage enterprises and start-ups, on the other hand, are more likely to seek venture money rather than development capital.
The following are indicators indicating a company is ready for business growth capital:
A solid financial foundation. Businesses with a steady cash flow and a positive profit margin are ideal candidates for investment.
A track record of earlier expansion. Investors in development capital are more likely to see you as a high-potential firm if you can show steady growth over the course of your business.
A well-thought-out strategy for future expansion. A defined plan and growth ambitions, backed up by credible financial predictions, are equally vital for businesses wanting to receive development finance.
Business growth capital is an increasingly important resource across the African continent. A recent study published by the IMF, indicated that economies in developing regions are likely to out pace other parts of the world over the next few years.
What is the purpose of business growth capital?
These are some of the most prevalent reasons why a company seeks expansion funding. There could be a variety of reasons for you to seek capital to assist your business develop, depending on the nature of your firm.
1. Product creation
Assume you want to broaden your product line. Expansion capital can be used to cover the expenditures of product development, research, and testing.
2. Expanding the manufacturing capability
You may already be generating items, but you wish to boost your output. If your current facilities have surpassed their capacity, expansion capital can help you create a second factory, for example.
3. Marketing and sales
You may have a fantastic set of products and services, but all you need is some help getting the word out to potential clients. Expansion financing can assist you fund marketing and hire salespeople to help you get your products to market.
4. Expansion internationally
If you’ve reached the limit of your domestic market, it could be time to consider expanding internationally. Expansion financing can aid your company’s international expansion.
5. Planning for Succession
If a big stakeholder decides to leave the firm, expansion capital can be utilised to help manage the process while ensuring the company has the funds it needs to grow.
6. Funding for acquisition
In certain circumstances, the fastest approach to expand is to buy another company in your industry. Expansion capital can help you fund an acquisition while also covering the costs of integrating the new company into your own. “Buy and build” is a term used to describe this growth strategy.
Is business growth capital the best option for your expansion plans?
The best candidates for development financing are well-established businesses with excellent expansion plans, but there are several variables to consider before choosing an investor. These are some of them:
- The degree to which you are willing to relinquish control over decision-making. This will help you decide if you want to go for a minority or majority investment.
- The quantity of money you’ll need to reach your growth goals. Initially, development capital investors may invest between R1 and R30 million. If a company’s expansion plans necessitate additional cash, it may need to examine other choices.
- The level of expertise that the investor will bring to the table. When it comes to successfully implementing a growth strategy, industry experience and contacts can make all the difference.
- Whether or not additional funding will be available. Follow-on funding might be critical for growth plans with multiple stages, guaranteeing smooth progress and meeting your goals.
How we can help
As a corporate finance firm with more than 100 years in combined experience in supporting businesses with start-up and growth funding in South Africa, we are here to help. We have broad sector expertise, investing in everything from high-growth online businesses to advanced manufacturing companies, transportation and logistics businesses and others. With a presence in both South Africa and the UK, our unique approach to corporate finance advisory services can be an asset to your business wen you need it.
