4 Major Differences between Private Equity Firms and Venture Capital

4 Major Differences between Private Equity Firms and Venture Capital

October 09, 2019 Admin 5
private equityventure capitalinvestment bankingequity firmsproject financing

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.

4 Major Differences between Private Equity Firms and Venture Capital

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:

  1. Private Equity Firms invest in few already established companies whereas Venture Capital invests in a large number of start-ups or small businesses.
  2. Private Equity investment is usually made at a stage where the company needs expansion or restructuring, whereas Venture Capital provides investment at a stage where the company is in its initial stage of growth.
  3. Private equity firms have entire ownership (i.e., 100%), whereas the ownership of Venture Capital in the company they are investing is not more than 49%.
  4. The investment through Private Equity Firms can be made to any company, whereas investment through Venture Capital is only limited to high growth industries such as Biotechnology, Information Technology, Energy Conservation, and others.

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