While both private equity and venture capital refer to firms that invest in companies and exit by selling the said investments in equity financing, there are major differences between these two funding types.
Venture capital firms mostly invest in small businesses and startups that show promise for high-growth. On the other hand, private equity ones mainly focus on acquiring mature, established companies that have deteriorated and are not making profits anymore. The idea is to streamline operations to get them back on the right track and increase revenues.
Private equity firms often buy 100 percent ownership of the companies in which they invest, giving them total control after the buyout. Venture capital firms invest in 50 percent or less of the equity of the companies. This is because most venture capital firms prefer to spread out their risk and invest in various companies.
Private equity firms acquire companies from any industry, while venture capital firms are often limited to startups in the sectors of technology, biotechnology, and clean technology. Private equity firms use both cash and debt in their investments, but venture capital firms deal only with equity.
Private equity firms mostly concentrating their efforts in a single company, investing $100 million and up. Venture capitalists spend $10 million or less in various startups with unpredictable chances of failure or success.
Gregory Lindae is a go-to expert in venture capital and private equity markets. He has also worked with some of the most prestigious financial companies in the industry such as BlackRock, Salomon Brothers, and FMO. For more on his work, drop by this page.