Growth capital

Growth capital is equity for a company that already has revenue and needs a larger sum to expand into new markets, hire, or build capacity. In the UK it comes from venture capital trusts, which invest under company rules that mirror EIS, and from growth equity funds that buy minority stakes in established companies.

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What growth capital pays for

Growth capital comes after the early rounds. The company has customers, a product that sells and a team running it, and it needs money to do more of what already works: open in new regions or countries, add a product line, hire a sales team, or build a second site. The money buys shares, so it is not repaid out of the cash flow it is meant to grow.

Two kinds of investor provide it. Venture capital trusts are listed companies that raise money from the public and invest it in small unlisted companies. Their own shareholders get income tax relief, so the trusts invest under scheme rules. Growth equity funds are private funds, set up like venture funds, that buy minority stakes in larger and often profitable companies, with no tax scheme attached.

Expansion can also be funded by borrowing. A company with steady profits may be able to use a business loan, a loan under the Growth Guarantee Scheme, asset finance for equipment, or recurring revenue finance if it sells subscriptions. Borrowing keeps the shareholding intact and has to be repaid on a schedule. Growth capital dilutes the owners and leaves the cash in the business.

Venture capital trusts and growth equity funds compared

Venture capital trustGrowth equity fund
Who they areListed companies raising money from the public, whose investors get 20% income tax relief from 6 April 2026Private funds raised from institutions and wealthy investors
Company rulesWithin 7 years of the first commercial sale, or 10 if knowledge-intensive; gross assets up to £30 million before and £35 million after; fewer than 250 employeesSet by the fund’s own investment policy
How much a company can takeCounts toward £10 million a year and £24 million in total, with higher limits if knowledge-intensiveSet by the fund
SharesNew shares issued to the trustNew shares, and sometimes existing shares bought from founders or early investors
Use of the moneyThe company’s own qualifying business, spent within two years, and never on buying another businessGrowth, acquisitions, and sometimes buying out existing shareholders
ExitA sale of the company or of the trust’s sharesA sale of the company or of the fund’s shares, before the fund’s fixed life ends
A founder presenting to a group in a meeting room

What growth investors look at

A growth investor is buying into a business that already works, so the questions are about how well it works and how far it can go. Expect them to test revenue growth over several years, the gross margin on each sale, what it costs to win a customer, how long customers stay, and how predictable the revenue is.

They look at the team beyond the founders. A company asking for growth capital needs a finance lead who can produce reliable monthly numbers, and managers who can run the business as it gets bigger. Gaps can be filled as part of the deal, with the investor helping to recruit a finance director or a chair.

They want a clear plan for the money: what it will be spent on, in what order, and what the company will look like once it has been spent. That plan, set against the forecast, is what the valuation is argued from.

  • Revenue growth over several years
  • Gross margin and the cost of winning customers
  • A finance function producing reliable monthly numbers
  • A spending plan tied to the forecast

Raising from a venture capital trust

A trust can only make a qualifying investment in a company that meets the scheme conditions when the shares are issued. Since 6 April 2026 those include gross assets of no more than £30 million before the investment and £35 million after, fewer than 250 full-time equivalent employees, and an investment made within seven years of the first commercial sale, or ten years for a knowledge-intensive company. The money counts toward the same limits as EIS: £10 million in any 12 months and £24 million in total, or £20 million and £40 million for a knowledge-intensive company.

The company must spend the money on its qualifying activity within two years, and it cannot use it to buy another business. A trust’s holding only counts as qualifying if the shares were issued to the trust, so trust money comes in as new shares. A trust investing alongside EIS investors in one round uses the same limits, so the company keeps one running total of every relevant investment.

The trust’s own investors now get 20% income tax relief on new trust shares, down from 30% before 6 April 2026, and must hold them for five years to keep it. The changes announced on 28 October 2026 concern how withdrawn relief is calculated. Ask any trust you approach how much it has available to invest and over what period.

What a growth deal involves

A minority stake and a board seat

The investor takes a minority of the shares and appoints a director, and may ask for an independent chair.

Investor consents

A veto over the budget, new borrowing, acquisitions, senior hires and selling the company, written into the shareholders’ agreement.

Management share options

A pool of options for the senior team. From 6 April 2026, Enterprise Management Incentives are open to companies with assets up to £120 million and fewer than 500 employees, up to £6 million of unexercised options in total and £250,000 per employee over three years.

An exit timetable

An agreed view of when and how the investor will sell: a sale of the company, a listing, or a sale of its shares to another investor.

Selling some of your own shares

A growth fund may buy some existing shares from the founders as part of a deal, turning part of your holding into cash. Trust money counts toward the trust’s rules only when it buys new shares from the company. Selling your own shares is a disposal for capital gains tax: see tax when you sell a business, and selling your business for what to do with the proceeds.

Questions people ask

What is the difference between growth capital and venture capital?

Venture capital backs younger companies, often before profit, on the chance that a few become very large. Growth capital backs companies that already have meaningful revenue and a working business, and pays for expansion. Growth investors lean more on the track record and the numbers, and may be willing to buy some existing shares from founders as well as new ones.

Can my company raise money from a venture capital trust?

If it meets the scheme conditions when the shares are issued. At November 2026 that means a UK permanent establishment, no stock exchange listing, gross assets up to £30 million before and £35 million after, fewer than 250 employees, an investment within seven years of the first commercial sale, or ten if knowledge-intensive, a qualifying trade, and room within the £10 million annual and £24 million lifetime limits.

Do growth investors take a majority stake?

Growth equity funds and venture capital trusts take minority stakes, and protect their position through board seats and consent rights. An investor buying a majority of an established company is doing a buyout, which is private equity; management buyout finance covers the case where the managers buy the company with a backer.

Can growth capital be used to buy another company?

Money from a venture capital trust or under EIS cannot be used to buy all or part of another business. A growth equity fund investing outside the schemes can fund an acquisition if its investment policy allows. A company buying another may also borrow for it; see acquisition finance.

Is growth capital debt or equity?

Growth capital is equity: the investor buys shares. Some lenders offer growth lending to companies with strong recurring revenue, which is debt repaid on a schedule. A company can use both, with equity paying for expansion and a facility such as recurring revenue finance covering working capital.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

Equity investment

Venture capital

Venture funds buy stakes in companies that could grow very large.

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Enterprise Investment Scheme

A company can raise up to £10 million a year from investors who get 30% income tax relief.

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Family office investment

Family offices invest a wealthy family's own money directly in private companies.

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Growth Guarantee Scheme

The British Business Bank scheme that guarantees 70% of an accredited lender's loss on loans to smaller businesses.

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