Growth Capital is Alive and Well in Washington DC Metro Area

With the government and defense sectors retreating [due to sequestration] and a sluggish global M&A market, one would think, capital markets activity in the DC metro market has ground to a halt. While this may be true among the region’s Federal Government contracting community, which has dominated the landscape for the better part of a decade, the same cannot be said for the private sector. Often overlooked, the commercial technology and services sector around the beltway has been a relative bright spot in an otherwise weak market environment. Another attribute unique to the recent market activity in the DC area is the influx of growth equity.

For the uninitiated, growth capital is a type of equity investment that sits somewhere between traditional venture capital and private equity. It is usually a non-control or minority investment used to fund identified opportunities to expand your business, including product development, international expansion, sales and marketing initiatives, and acquisitions among others.

Over the last 12 months, we have identified over 200 venture and growth capital investments made in companies headquartered or with significant operations in the DC metropolitan area. Of these, approximately 25% represent material (>$5MM) growth capital investments in technology and/or business service sectors. Investment amounts ranged from $5MM to $150MM, with an average raise of approximately $25MM. Although no one sector dominated the landscape, there are certainly some themes that are gaining momentum, including:

Analytics – Not surprisingly, with the ever-increasing velocity of data across the enterprise, technology that extracts, manages, analyzes and converts data into actionable intelligence are in high demand and attracting a lot of investment dollars.

Healthcare/Life Sciences – Heightened regulatory requirements and shrinking margins have healthcare and life science companies looking for ways to reduce overall spend. Accordingly, healthcare technology and related services that can demonstrate a strong ROI, mitigate regulatory and/or compliance risk, increase patient throughput, etc. are in high demand.

Public Sector Technology – Bringing federal, state and local governments back to fiscal health continues to be a top priority. In contrast to the retraction underway within the government contracting sector, software and other technology-enabled services targeting public sector clients (e.g. federal agencies, state & local courts systems, etc.) continue to experience strong demand as these organizations strive to increase productivity and reduce costs in light of persistent budget deficit concerns. Ultimately, these organizations need to learn how to “do more with less”.

At Clearsight we provide a wide range of capital raising and private placement services. We believe growth capital is a great alternative for companies and sectors that are experiencing strong tailwinds, and have a demonstrated record of success and growth. With the resurgence of the commercial sector in the DC Metro area and private equity overhang, we believe the supply of and demand for growth capital will remain high for the foreseeable future.

Representative Growth/Expansion Capital Transactions in DC Metro Area