Structured Growth Equity - a Definition

I was talking to an independent growth equity sponsor a couple of weeks ago, and he dropped a term on me that I have never heard before - he told me that he provided "structured growth equity." He told me it was growth equity with features baked into the financing, such as participating securities and dividends.

I have, of course, heard of these features and have used them in specific deals for downside protection. I had just not heard them under the particular moniker of "structured growth." Instead, I have heard them called other names like "out of market or sharky terms."

I'm afraid I disagree with the term "sharky" as these terms that I have placed on these deals were to prevent downside protection or because I could not negotiate enough ownership to hit my target return. This scenario could be because the company's price per share was higher than its worth due to not hitting its last rounds milestones. These terms prevent the company from taking a down round and protect the founder and existing shareholders from significant dilution. It gives them a second chance to grow beyond their current valuation.

Regarding structured equity considered not being "market terms,"- I think that is simply untrue. If a company receives a structured growth equity deal, that is a data point from the market.

I have a prediction that there will be a significant amount of structured growth financing deals in the next couple of years at the Series A. The amount of capital going into seed rounds and the multiple compression in the later stages will leave many companies not many options to keep raising money at higher valuations.