Congratulations. You’ve beaten the odds. Your big idea has become a real company.  You’ve raised seed and early-stage money, and your product is in market and getting traction. All that remains is to scale the business, file for your IPO, and start shopping for your jet, right?

Surviving the perils of a start-up is a major accomplishment, but if your aspiration is to go big, the journey is just beginning. Building a company in its growth stages requires a completely different set of skills than the ones that got you this far. Now you have to develop worldwide sales and distribution, hire hundreds of employees, and most painfully, upgrade your team. Be prepared for many visits to the red room of pain. It’s all part of the great adventure of building a major enterprise.

Companies are staying private longer

Prior to the famous dot-com bust, public markets were the primary source of growth capital for start-ups. When the markets were favorable, a company with a $25 million run-rate and a sexy story could IPO and ride the micro-cap sector to glory.

Everything changed after the turn-of-the-millennium meltdown. From the ashes emerged Sarbanes-Oxley, a set of regulations that have resulted in a much higher bar for companies that want to IPO. Today’s tech IPOs require more critical mass. That means the markets generally want to see $75 to $100 million in annual revenues plus a solid, predictable business model.

This translates into a completely different entrepreneurial playbook. Growing an idea to $25 million in revenue is one set of challenges. Getting to $100 million is orders of magnitude more difficult.

The bottom line: Young companies are staying private much longer. They are growing to unprecedented scale and raising a lot more capital. Twitter’s last investment round reportedly valued the company at $10 billion.

Where does the money to support this size company come from? A relatively new category of asset class, called growth-stage venture or growth private equity, has expanded rapidly in just the past five years. Yet it remains mysterious to many entrepreneurs.

Even within the investment community, you will hear varied descriptions of growth capital. Ask fifty people to describe growth capital and you will get as many different answers. And they could all be right.

The growth ecosystem

What makes a growth-stage company? Generally, it has its first product or service in the market and is getting traction. At this stage, investors like to say that the dogs are eating the dog food.

Product development continues to be very important, but sales, marketing and customer service are now center stage. The founding management team is still in place, but new faces and skill sets are needed. The amount of money needed to maximize the company’s opportunity outstrips the company’s ability to generate free cash. In many cases, these companies need tens of millions of dollars to scale their operations.

Growth investors cover a wide spectrum. Some growth-stage investors prefer the early stage of expansion. This investor generally has been rooted in the venture capital industry, or he or she may be a successful entrepreneur-turned-investor. These investors tend to be active and more hands-on. They will make available their extensive networks and years of experience. You may want seasoned growth-capital investors as board members or advisors, as they will be able to open doors and help you solve problems that may be new to you but that they’ve seen repeatedly.

At the other end of the field are the financial engineers. They tend to be passive investors who engage much later in the growth cycle, when a big exit is not too far over the horizon. Most will write jumbo checks -- $50 million and up -- to be well-positioned for an IPO. They generally will have no interest in being on your board or offering operational assistance.  

Within the growth spectrum you will find many variations. Some funds only invest in companies that are already profitable. Others seek to fund the burn-rate required to rapidly scale in big markets. There are those who specialize in being the first institutional capital--they look for companies that have bootstrapped to critical mass without prior institutional investment.

Similar your hunt for early-stage investors, compatibility with your aspirations and personal chemistry are essential ingredients.  If your company is doing well, you should have the luxury to pick and choose whom you work with.

A healthy outcome

Growing to greater scale as a private company provides the opportunity to mature your business without the distraction and exposure of the public markets. When the time comes and you have built a solid predictable enterprise, you will be rewarded with excellent multiples, either in the public markets or in a jumbo merger or acquisition. Understanding the many varieties of growth capital will help you achieve a great outcome for yourself, your employees and your investors.