The Lucky Wave and Growth Capital Availability

Posted on: February 11th, 2021

growth capital

Corporate success occurs when preparation meets opportunity. Companies do not control the economic environment they operate within, but they very much control their reaction and readiness to capitalize on a market opportunity. Smart companies understand that there are two types of growth – strategic growth and opportunistic growth.

Strategic growth describes a sustained push via an organized, structured approach into a market via investment of resources and capital. The long-term effect of this path is above average rates of growth into a larger and more diversified company. Opportunistic growth occurs more like a black swan effect wherein a company has an immediate market opening caused by an externality. This disruptive force resets the way companies’ source and sell, unleashing massive market demand in the form of a lucky wave.

Why Companies Need Growth Capital

Lucky waves are rare occurrences which, if capitalized on, can produce a huge scaling effect for a business. Riding a lucky wave requires a business to have strong execution readiness and ample capital. Due to its sudden emergence and fast speed, you must have your resources ready to catch it. Many companies miss out on the wave because they lack growth capital to invest into the wave. Companies need to have their growth capital in place and ready to go when the wave is visible.

If there is a delay due to the need to go through a growth capital process, there is less overall growth impact. The key to growth capital readiness is in prioritizing it as a corporate goal. While many companies have available balance sheet cash and lines of credit, lucky waves require big checks usually sourced from non-bank capital sources such as mezzanine lenders and private debt funds.

The lucky wave allows you to compress 3 to 5 years of steady, strategic growth into one growth step. It also has a far more attractive return than a high-priced acquisition. It takes bold action and a high level of readiness to maximize, but the lucky wave can transform your company. When other companies in your industry are just hanging on, you can become the new market leader.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.