Development capital investment
Development capital investment

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Development capital investment
  • Background to development capital investment
  • Commencing the process
  • Due diligence
  • Consents and approvals
  • Transaction documents
  • Post-completion

Development, or growth, capital investment refers generally to an investment in a mature company that is earning revenue and has operating profits, but is not able to generate sufficient cash to fund a restructure or growth.

Background to development capital investment

Why seek investment?

A company may seek this type of private equity investment to:

  1. expand its business

  2. restructure its operations

  3. finance a major acquisition, or

  4. restructure its balance sheet, eg by reducing debt

Such companies are usually unable to take on additional debt either due to existing debt levels or market conditions. Private equity investment is seen as a realistic alternative.

An investment of this nature will not normally lead to a change in control of the business as investors take a minority stake in the company. In addition, unlike other forms of private equity investment, investors do not significantly intervene in management affairs. Existing shareholders are not looking to exit and existing management is settled.

Types of investors and investment

Investment in companies seeking development capital comes from a number of sources.

Some private equity firms may focus solely on development capital investments, however it is not unusual to see late stage venture capital firms or conventional buyout firms (or divisions of such firms) also participate in such investments.

The investment will usually be made by way of a subscription for ordinary shares