The common source of confusion between a private equity and venture capital is that they both refer to firms that invest in companies and exit by eventually selling their investments via equity financing. But all the funding similarity ends in this general, canopy aspect.
These two business endeavors invest varying amounts of money, claim different percentages of equity, and deal with different sets of companies, distinguished by type and size. Venture capital firms mostly put their money in startups with high-growth potential.
Most venture capital firms spend $10 million or less in companies and would spread out their investments among various startups. This way, if one fails, the entire capital is not affected. Unlike private equities, venture capitalists deal only with equity, investing only in 50% or less of these.
Private equity firms, on the other hand, use both cash and debt in their investment, and mainly get involved in established, mature companies that are not earning. While private equities can buy companies from any sector or industry, they prefer to focus on a single company, buy 100% ownership, and work on the operations to make it grow anew and generate revenue.
A go-to expert in the investment industry, Gregory Lindae has built an impressive track record and influence in venture capital and private equity markets. He has worked with prestigious companies like BlackRock, Salomon Brothers, and FMO. For more on his work, drop by this website.