Structured capital: financing growth without giving up control

^{VSS's Managing Partner Jeffrey Stevenson}

Structured capital is a bespoke financing solution that sits at the intersection between traditional private equity and private credit. It’s gaining recognition as an innovative way for companies to access growth funding without giving up significant ownership. New York-based VSS Capital Partners is a pioneer in this space, pursuing a structured capital investment strategy for over two decades.

Jeffrey Stevenson, Managing Partner at VSS, tells Jayda Etienne, Deputy Editor of Preqin First Close, about the appeal of structured capital for founders, its focus on tech-enabled business services, and why M&A continues to be an important growth lever for building scale and creating value.

What do you look for in businesses when making an investment?

We look for recurring revenue, mission-critical products or services, strong cash flow, a diversified customer base, experienced management teams, and industries with durable long-term demand that can consistently create value for their customers. For those reasons, we particularly focus on tech-enabled business services, healthcare IT, and education technology. They allow us to pursue our buy-and-build approach and then sell to strategic buyers.

Why focus on lower-mid market companies?

There are plenty of opportunities and many thousands of these companies. The lower-middle market allows us to select a business that has a lower scale, which we can effectively scale up at the time of our exit. We’re able to buy these businesses at a lower multiple and, historically, have achieved about a 300 basis-point lift in multiple by the time we exit.

Lots of your portfolio companies have completed add-on acquisitions. What role does M&A play in your value creation strategy?

M&A is a critical component. It’s a very important growth lever, but it’s not the only one. We’re also looking for businesses that can generate organic growth. We help them build scale in their operations and pursue strategic acquisitions to expand their capabilities, geography, and customer base – so they end up a more valuable enterprise upon our exit.

How does structured capital differ from a typical private market strategy?

Many founders want growth capital without giving up control or taking on excessive leverage. Structured capital provides flexible financing, meaningful growth capital, governance support, and strong alignment with management because they’re retaining a significant amount of equity. Meanwhile, they have reduced dilution, whereas traditional equity is looking for control or close to 100% ownership.

Is structured capital considered private equity, or is it also private credit?

It’s really a hybrid of both. Private credit is a lending strategy and generally has delivered attractive single- to double-digit performance, and private equity can potentially deliver similar and even higher double-digit returns. What we like about structured capital is that it’s the best of both worlds. We’re able to have the downside protection associated with private credit, but the upside potential associated with private equity.

How do non-control investments impact your relationship with management teams?

We view it as a partnership with management. We align before we make the investment to ensure we all have the same objectives. We also do a thorough analysis of the value creation plan to make sure we’re all on that same page. If management has shown exceptional leadership and wants to remain independent, a minority investment often creates the strongest alignment because they retain the maximum amount of equity. If ownership, succession, or strategic change requires greater involvement from us, a control investment may be more appropriate. It’s all about positioning the business for long-term success.

Do companies seeking control investments want something different to those seeking non-control investments?

Whether it’s control or a minority investment, the objectives are the same. Typically, the founder or ownership group wants to take some chips off the table but isn’t looking for a full sale. They’re also looking for a partner to help them with growth capital for add-on acquisitions. If we end up in a control position, we still look for a meaningful rollover and percentage of ownership from that founder group to ensure alignment.

How has the buyer landscape evolved over the past five to ten years?

Strategic buyers and private equity firms have become more selective. Buyers increasingly value high-quality recurring revenue and resilient earnings, professional management teams, and clear-cut growth opportunities. That means you end up with premium valuations and multiples that are earned as a result of business quality, whereas in the past, there was perhaps more reliance on financial engineering.

Despite a sluggish exit environment, you managed to exit successfully from Centroid in July. Has your strategy changed due to tougher conditions?

Our strategy has fundamentally remained the same over the years. However, one of the big differences is that if you look at the period during 2021, when multiples were extremely high, we stayed disciplined. One of the problems facing private equity today in terms of exits is that it’s difficult to achieve the multiples that were paid back in 2021.

Going back to the lower-middle market, if we’re able to achieve organic growth and acquisition growth, and we’re able to take a business from, say, $100mn of enterprise value to $250mn, then that larger business, upon exit, is going to attract a higher multiple. We’ve always had an uplift in terms of our exit relative to our buy-in value and multiple. Staying in that corridor of the lower-middle market and building scale, we’ve been able to have strong exits, despite what’s been a difficult exit environment for private equity over the past four or five years.

How do you know when it’s the right time to exit a company? Are there certain milestones that you want the business to achieve?

We’re generally looking for a certain financial return, which is about 3x. We also target a five-year holding period, although it could be a little bit less or a little bit longer. Probably the most important thing is to leave growth potential on the table for the next buyer, because they’re going to pay a multiple for the platform that we’ve invested in if they believe it has further growth. It’s really a combination of those factors.

You describe structured capital as a differentiating feature for your firm. Do you think that will still be the case in five years?

We’re seeing more firms enter into structured capital, but not necessarily exactly the way we do it. Structured capital is still a very, very small percentage of the total private equity marketplace, because most private equity funds are looking to do control buyouts.

In five years, I’m sure there’ll be more competition as people find the strategy attractive. But there’s no shortage of opportunities to help founders have partial liquidity and, at the same time, a partner that’s going to help finance their growth without giving up control.

Jayda Etienne is Deputy Editor of Preqin First Close. It’s quick, easy, and free to subscribe here.

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_{The views expressed are the opinions of VSS Capital Partners as of August 2026. They do not constitute an endorsement, recommendation, or any other advice, and are subject to change. The content does not necessarily express the views of BlackRock, Preqin, or any of their affiliates. VSS Capital Partners is not affiliated with Preqin.}