At times, private equity is often confused with the term venture capital as they both are focused primarily on investing in the companies and exit after selling their installments such as initial public offerings (IPOs). These firms buy the companies of different size and type, invest different funds, and claim a different percentage of equities in their investing companies.
Private equity refers to the capital investment made by the investors in the companies not listed on the stock exchange market. They invest funds in a public company for conducting buyout, which results in the delisting of that public company from the stock market. Private Equity Firms focus on buying an existing company and restructure to develop and expand more to gain profit.
On the other hand, Venture Capitals are the firms financing the start-ups and small businesses lacking with funding. Generally, this type of funding involves higher returns and a higher risk of failure. Newer companies with less time of operation usually prefer funding to shape their ideas from the Venture Capital as it’s popular and helps raise funding since these start-ups don’t have access to bank loans, capital markets, or others.
Private Equity and Venture Capital have following differences:
