Capital Development

Capital development (or growth equity) is a form of private equity investment targeting established companies — typically SMEs or mid-size businesses — that have validated their business model and are seeking significant capital to accelerate organic growth, execute an acquisition strategy or internationalise, without the high leverage typically associated with an LBO. It sits between venture capital (early-stage, high risk) and LBO (mature, leveraged) in the private equity spectrum.

‍

A capital development investor typically takes a minority stake (20–49%) in the target company, alongside existing shareholders who retain majority control and management. The fund contributes both capital and expertise (governance, strategic networks, international connections) in exchange for preferential rights — liquidation preference, anti-dilution protections, board seat, information rights. The investment horizon is typically 4 to 6 years.

‍

In the Franco-Swiss mid-market, capital development is particularly relevant for: family-owned SMEs seeking a financial partner for an acquisition without wanting to cede control, fast-growing B2B services companies funding their commercial expansion, or technology companies bridging the gap between Series B and a trade sale or secondary LBO. French and Swiss regional development funds are active players in this segment.

‍

Example: a Vaud-based IT services company (CHF 12.0 million revenue, CHF 1.8 million EBITDA) raises CHF 3.5 million from a regional development fund for a 25% stake (post-money valuation CHF 14.0 million = 7.8x EBITDA). The proceeds fund 2 add-on acquisitions in France over 18 months, doubling revenue to CHF 24 million within 3 years. The fund exits via an LBO secondary at CHF 28.0 million EV — generating a 3.2x MOIC.

‍

At Hectelion, we advise companies seeking capital development partners — from investor identification to term sheet negotiation and independent valuation.