Understanding Growth Capitals with respect to MARS Growth Capital

Mars Growth Capital is a Singapore-based technology fund that was established to give fast-growing startups and tech companies in the Asia-Pacific area access to non-dilutive, inexpensive, and liability-free growth capital.

Mars Capital is a joint venture (JV) between Israel-based Fintech Liquidity Capital and the main banking division of Mitsubishi UFJ Financial Group in Japan, MUFG Bank. Delivering the greatest answer for the most difficult financial difficulties facing innovative companies is the fund’s unambiguous objective.

What exactly is a Growth Capital?

MARS Growth or simply a Growth capitals is a kind of privately owned equity investment that is usually made by a minority of investors present in relatively mature companies that are looking for funding to expand or restructure operations, enter new markets, or finance a sizable acquisition without shifting who controls the business.

Growth money is frequently sought by businesses to properly finance a pivotal moment in their development. These businesses are probably more developed than those that receive venture capital funding; they can make money and produce revenue, but they lack the cash flow to finance significant growth, acquisitions, or other expenditures.

How it Works:

The growth money comes from a number of sources since it sits at the confluence between private equity plus venture capital. The types of investors who provide money for business expansion include a large range of equity and credit sources, as well as private equity and late stage venture capital funds, sovereign wealth funds, family offices, mezzanine funds, hedge funds and Business Development Companies. Traditional buyout firms also make investments in growth capital. Growth capital becomes a compelling alternative, particularly in places where financing is less readily available to finance leveraged buyouts or where competition to fund young enterprises is fierce.

Investment Approach:

MARS growth being a growth equity investments, has the various traits included, as outlined by the National Venture Capital Association:

Revenues for the company are increasing quickly.
The business is profitable or on the verge of profitability, with positive cash flow.
Entrepreneurs may own a company, and this is frequently the case.
Investor frequently buys minority ownership holdings and is unconcerned with control.
The variety of investments made by industries is comparable to investments of venture capitalists.
Additional funding rounds are typically not anticipated until exit, and capital is utilized for shareholder liquidity or corporate needs.
Investments are made with no or minimal leverage.
Growth, not leverage, generally determines investment returns.
Designing a Growth Capital:

Companies are increasingly using private equity-style structures in order to secure crucial assets for the expansion of the capital market. From the standpoint of an investor, these assets are crucial and have the growth potential that they want to provide and profit from through retained share ownership. Therefore, from a commercial, legal, and tax perspective, growth financing would have many characteristics with a secondary buyout.

An Ideal Growth Capital:

There would be special stipulations for each agreement. These conditions would be chosen based on a number of important factors, including historical financial performance, operational history, market capitalization, etc. These conditions, however, would be comparable to the standard agreement formed for late-stage venture capital financing.

Investors would obtain preferential security in the target company even in growth funding, similar to an agreement with a venture capitalist.
These would represent a minor stake with minimal power.
In the case of a triggering event, such as an IPO, the agreement would grant redemption rights to create liquidity.
The agreement would be made in order to grant operational control over important issues. These clauses grant investors the right to consent to important transactions such as those involving debt or equity, mergers and acquisitions, changes to tax or accounting laws, departures from the budget or business plan, hiring or firing of key management personnel, and other significant operational activities.
Investor rights like registration, tag-along rights, and drag-along rights are granted as part of the growth capital agreement. These rights are thought to be suitable for the nature, size, and duration of the transaction.

Difference between Growth capital and venture capital:

Between growth capital and venture capital, there are a number of significant differences that private equity investors should be aware of. These include:

Venture money concentrates on early-stage businesses with an unproven business plan, whereas growth capital concentrates on investing in mature businesses.
Investments are made in numerous early-stage businesses in a particular industry or area when venture capital is involved. Growth capital would, however, be invested in a market leader or a projected market leader in a specific industry or sector.
The revenue growth predictions of the target firm are the foundation of the venture capital investment theses. The investment strategy, however, is based on a clear objective to maximise profitability for growth capital investment.
Future capital requirements in venture capital investments are not known. This would not apply to growth capital investments made in businesses that have little or low future capital requirements.
Difference between Growth Capital and Controlled Buyouts

Growth capital is different in a number of ways, including:

The investment in control buyouts is a controlling stock interest. In contrast, this is not the case in growth capital.
In controlled buyouts, private equity investors make investments in extremely successful operational businesses. These are the businesses that have a positive free cash flow. Growth capital investments, however, are made in businesses with little or no free cash flow.
Debt financing is frequently used in controlled buyouts to leverage the investment. However, the businesses’ expansion capital investments have no debt or debt that is minimally funded.
Investments in controlled buyouts are done at a time when growth is stable and predictions for revenue and profitability are reliable. Growth capital investments, on the other hand, are undertaken at a turning point where the investment will increase the target company’s sales and profitability.

Conclusion:

Compared to controlled buyouts and standard venture capital, growth capital such as MARS growth is a less well-known form of investment. However, compared to traditional private equity investments, it represents a low-risk cost of capital for the investor. The benefit of a tempting source of financing that aids target organisations in accelerating the growth of their revenue and profitability is returned to them.