How growth capital can benefit your business

30 May 2022

As the Australian Business Growth Fund (ABGF) explains below, growth funding is a type of equity funding designed to help businesses invest in growth opportunities to enable them to scale.

JUMP TO:
JUMP TO:

One of the most pressing issues for business owners is deciding how to finance their growth; specifically, when to borrow (debt funding) or when to raise (equity funding).

While debt funding plays an important role in certain circumstances, it’s likely many businesses will require a mix of both sources at some point to grow sustainably.

Growth capital fills the gap between other forms of equity-based funding, such as venture capital (for businesses earlier in their journey – such as start-ups) and buyout funds.

It is designed to support businesses with a demonstrated track record of commercial success in furthering their growth aspirations.

Like other forms of equity-based funding, investors provide growth capital in exchange for an equity stake in the business.

Some investors are providers of minority equity investment – this means they make investments in exchange for less than a 50 per cent equity stake in a business. A minority investment with the right funding partner enables the existing shareholders to retain control and steer the business in the direction they want.

While the process of raising external growth capital may be less familiar to some business owners, there are significant benefits in doing so, particularly with the right investor.

Here are four potential benefits of securing equity-based growth capital.

1. Move into the fast lane

As the saying goes, timing is everything. Business owners must act decisively to capitalise on new opportunities, maintain momentum and gain market share. Securing an injection of growth capital from a high-quality investor can be a gamechanger for any business.

At opportune times, external investment can enable you to move more quickly compared with ‘bootstrapping’ your business. With capital at your disposal, you could be better positioned to claim a first mover advantage and win new customers; enter a new geography or launch new products and services. For business owners looking down the road to their eventual exit strategy, securing growth capital (including when used in conjunction with other sources of funding) could help you achieve your goals even faster than you originally planned.

2. Open new growth possibilities

Running a business is a constant juggling act and you’re either focused on getting more cash in the door or putting the cash you have to best use. And when the purse strings are tight, business owners often need to take a binary ‘this or that’ approach to spending. Raising capital enables business owners to expand their thinking and proactively invest in the areas most likely to drive exponential growth and freeing them from having to choose between multiple areas of equal importance.

Unlike other sources of funding, growth capital also provides businesses with more flexibility on where and how to spend their money. And not just on typical capital expenditures, such as machinery or equipment, but also on operational costs, such as hiring staff or boosting marketing expenditures to drive sales.

3. Free up resources

Entrepreneurs need to wear many hats, especially in the early stages. However, as the business grows in size and complexity, this becomes quickly sub-optimal. As a result, many business owners wait too long to hire the capabilities they need to continue growing. Soon enough, they are diverting most of their time and energy toward burdensome administrative tasks and away from other critical areas that energise and excite them.

Forward looking business owners utilise growth capital to make key hires. Bringing in leadership talent can supercharge critical growth areas and free up owners to delegate, and focus on what they are best at and love doing most.

4. Access additional expertise

When an entrepreneur secures growth capital from a quality investor, they should be receiving much more than just a cheque. Active and experienced investors provide business owners with much-needed support and serve as a sherpa on the journey by offering additional resources and advice and opening doors along the way.

Having access to external investors eases the burden of growing a business. They may participate on your company board, facilitate introductions to potential customers and talent networks, and assist in navigating strategic roadblocks, succession planning and operational challenges. This support enables businesses to not only avoid unnecessary mistakes but also maximise their valuations for future funding rounds or for an eventual sell-out.

Case study – Kikada Lane dental

Founded in 2019, Kikada Lane Dental is a unique aggregated specialist healthcare model. It consolidates strategic, clinical and financial interests for individual dental practitioners, while allowing them to maintain clinical control and business oversight.

In two years of operation, Kikada Lane Dental has expanded to include 13 locations across New South Wales, Queensland, Victoria and South Australia, a noteworthy result given it was achieved in the middle of a pandemic!

Just weeks after Kikada Lane Dental first reached out to the Australian Business Growth Fund through a website enquiry, a $10 million investment was made.

Kikada Lane Dental has ambitious growth plans to extend its footprint over the next five years to include more than 60 clinics nationwide. Such expansion will see it become one of the five largest dental providers in the country, and enable the delivery of quality care at scale, while tripling its revenue across the same period.

It might seem obvious, but dentists enter the profession to become clinicians. Then reality hits, and they spend much of their time running the business: office management, human resources, IT, finance, insurance, and the rest.

“Our practitioners are able to focus on what matters most to them – delivering better levels of service and upskilling their capabilities into areas of interest – with many time-consuming tasks taken care of,” says Kikada Lane Dental founder and managing director, Dr Peter Hughes.

“With superior levels of corporate support across human resources, finance, marketing, operations and training, and economies of scale for procurement purposes, practitioners can operate with autonomy, more effectively deploying treatments and care to their patients.”

The model also gives participating practitioners access to a future exit strategy that delivers several tiers of enhanced wealth creation.

In addition to being a smart business model, Kikada Lane Dental provides significant benefit to the communities it services. In FY18 alone, 72,000 hospitalisations occurred for dental conditions that may have been prevented with earlier treatment. So, a more efficient and effective dental practice is not only good for the profession, it is good for Australians too.

The Australian Business Growth Fund was established as a public-private partnership between the Federal Government and six leading banks, purpose-built to back SME businesses to pursue growth activities. More information can be found here.

New Memberships for wherever you are in business

Hard times. Good times. Crunch time. Growth time. We’re here to support you at all those pivotal times in your business life. We’ve now tailored our range of memberships to fit wherever you are in business – today and well into the future.

Restricted Page

You are being redirected to our login page!