A growth company is one that has a business model that generates cash flows or earnings at a rate faster than the overall economy. It is often focused on reinvesting into the company to continue growing, rather than focusing on distributing dividends to shareholders. Young or emerging companies often exist as growth companies as they are rapidly expanding and adapting their models as the market evolves. By comparison, mature companies tend to remain stable with very little to no growth.

As growth companies reinvest back into the company to grow, they often have more difficulty obtaining financing than mature companies because of their lack of established financials. Growth companies may leverage other strategies instead, such as venture capital, private investments and IPOs. Investors in growth companies are less concerned with obtaining dividend income and more interested in the potential to increase the value of their shares.

The technology sector is characterized as having numerous growth companies. As technology continuously evolves, these companies are forced to stay ahead of the curve in order to attract customers and remain competitive. Much of their growth is derived from the launch of new products, services and technologies that are able to keep up with the rapidly changing consumer demand.

In general, growth companies carry a significantly greater risk in terms of potential lack of financial stability and success. Investors in growth companies often use several strategic approaches to mitigate the risk, such as investing in the companies they understand best, seeking out stable companies in the industry, or diversifying their portfolio. It’s important to consider that when investing in growth companies, investors should be aware of the greater risk and have an understanding of the company’s business model to ensure the better likelihood of success.