Growth capital plays a crucial role in corporate financing. In contrast to traditional venture capital (VC), which focuses on early-stage financing of start-ups, growth capital aims to support established companies in their expansion phase. This form of capital enables companies to strengthen their market position, enter new markets or develop innovative products and services without relinquishing control of the company.

Differences between growth capital and venture capital

While venture capital generally invests in young companies with high growth potential that often cannot yet demonstrate stable revenues, growth capital is aimed at established companies with a proven track record and stable cash flows. VC investors take higher risks because they invest in companies that are still in the development phase. In contrast, growth capital investors look for companies that are poised to expand their operations but need additional capital to fund that growth.

The importance of growth capital for the German market

In Germany, growth capital plays a central role in supporting the Mittelstand, which is considered the backbone of the German economy. Many medium-sized companies face the challenge of remaining competitive in an increasingly globalized and digital market environment. Growth capital offers these companies the necessary financial resources to invest in new technologies, expand production capacities or enter international markets.

However, recent studies show that German companies often have less access to growth capital than their international competitors. This can impair Germany’s innovative strength and competitiveness as a business location. Initiatives such as the German federal government’s twelve billion euro start-up package, largely financed by heavyweights of the German economy, aim to close this gap and provide German founders with more growth capital.

International comparison: Germany and the US

Germany is making progress in venture capital, but still faces challenges in international comparison, particularly with the US. According to the KfW Venture Capital Dashboard, the investment volume in German start-ups exceeded the 2 billion euro mark in the third quarter of 2024 for the first time in over a year, with a total of 2.5 billion euros in 280 financing rounds.

Despite this positive development, the gap to the US remains considerable: per capita, twelve times as much capital is invested in GenAI start-ups in the US as in Germany. Accordingly, only 4% of the founders surveyed see Europe as the long-term winner in the GenAI race, while two-thirds see the US in the lead. This discrepancy is partly due to the different structure of capital providers: In the US, pension funds, insurance companies and large foundations make significant contributions to the venture capital market, while in Germany, state funds and family offices dominate. Regulatory restrictions make it difficult for pension funds and insurance companies to invest in illiquid alternative investments in many European countries. To remain internationally competitive, Germany must improve the framework conditions for venture capital and facilitate access to funding for innovative start-ups.

Current developments and examples

Current developments in the growth capital market are showing increasing momentum. For example, the investor TCV has raised three billion US dollars in 2024 to invest in established start-ups that are about to go public. This strategy aims to make safer investments with lower risks compared to early-stage venture capital.

Another example is the partnership between Bosch and Nikola Motors in the field of fuel cell trucks. Through this collaboration, both companies are combining their strengths to jointly develop innovative solutions and drive the market forward. Such collaborations and investments underscore the growing importance of growth capital in driving innovation and expansion in various industries.

When is growth capital relevant?

Growth Capital wird typischerweise in der Expansionsphase eines Unternehmens eingesetzt, wenn folgende Kriterien erfüllt sind:

• Stable revenues: The company is already generating consistent revenues and has a proven business model.
• Market expansion: There is a desire to enter new markets or increase market share.
• Product development: The development of new products or services requires additional capital.
• Operational scaling: There is a need to expand production capacity or improve operations.

Figure: Phases of corporate financing

The following is an overview of the various financing phases of a company and the respective relevance of venture capital and growth capital:

Phase	Company status	Form of financing
Seed stage	Idea oder prototype	Angel investors
Early stage	Market entry, initial revenues	Venture capital
Growth stage	Established market position, growth	Growth capital
Later stage	Maturity phase, preparing for IPO	Private equity, IPO

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Conclusion: Growth capital as an engine for sustainable growth in Germany

Growth capital offers German companies the opportunity to achieve their growth targets without giving up control of their business. Through strategic investments, companies can strengthen their market position, develop innovative products and achieve long-term success. Working with growth capital investors not only brings financial benefits, but also valuable expertise and networks that pave the way for sustainable growth. In view of the current challenges and global competition, it is crucial for Germany as a business location to improve access to growth capital and thus strengthen the innovative power and competitiveness of the German economy.