Do Growth Equity / minority investments utilize leverage?

Based on the most helpful WSO content:

1. Downside Protection in Growth Equity / Minority Investments:

   • There can be structures for downside protection in growth equity or minority investments. This might include mechanisms like liquidation preferences or convertible preferred shares. These structures help protect the investor's capital in case the company underperforms or faces financial difficulties.

2. Use of Leverage in Growth Equity / Minority Investments:

   • Growth equity investments typically involve less leverage compared to traditional LBOs. The focus is more on organic growth rather than financial engineering. However, there can be instances where some form of leverage is used, but it is generally less intensive.
   • The underwriting of 2-3x MOIC (Multiple on Invested Capital) is often driven by the expected growth of the company rather than heavy reliance on leverage. The growth equity model banks on the company's ability to scale and increase its revenue and profitability over time.

Instruments that might be used for back-leverage, if any, are not explicitly detailed in the provided knowledge base. The emphasis remains on the growth potential of the investment rather than leveraging the investment heavily.

Sources: Tech Growth Equity vs Tech Leveraged Buyout Firms, Why Growth Equity vs Buyout?, Growth Equity at MF Arm (KKR / TPG / Blackstone) to LBO PE?, Q&A: I’ve held Pre-MBA MM LBO, Growth Equity and Venture Capital investment roles for funds with $500M+ AUM to $5B+ AUM, Q&A: Analyst --> Associate at a VC / Growth Equity Firm