Understanding the difference between Venture Capital vs Private equity

When it comes to connecting the dots between venture capital and private equity, there is a thin line that exists between the two. Although both venture capital and private equity deal with investments in different firms that are unable to raise funds from the startups directory. The key difference between the two lies in the stage in which an investment in a company is made. Here I will try to explain the difference between venture capital VS private equity in detail. Defining Venture Capital Venture Capital is a loan or an investment given by venture capitalists to startup companies that show promising potential. Venture capitalists can be anyone from individual investors to financial institutions as well as banks. Venture capital firms usually provide funding to start-up businesses in exchange for equity in the start-up company. The risk factor is higher when dealing with venture capital firms, therefore, venture capital is also usually referred to as risk capital. Venture capital is more popular among high technology industries. If you want to closely look at venture capitalist there are many TV shows about how venture capitalist works. Defining Private Equity Private equity can be best described as a general term used to indicate a large sum of money that is collected by a number of investors. This money is then later used to gain stakes in different companies. Private equity and venture capital generally serve the same purpose. That is, they both invest the money in different firms with promising potential. However, the difference arises in the fact that private equity deals with more mature companies that are well established and stable. Whereas, venture capital is used to acquire stakes in start-up companies. Advantages of private equity The main advantage of private equity is that it is largely favored by companies as it provides them with the ease of liquidity rather than usual conventional methods which may include high loans. Besides this, it also offers delisted companies with a chance to experiment with new methods to increase their company’s outputs and find the one that works best for them. This way the company can figure out where to cut losses and make money. Disadvantages of private equity There are certain disadvantages to using private equity as well. In private equity, your control over your own business is reduced significantly. A large share of your business is given up in exchange for a large sum of money. Other than this, the involvement in your importance of business research will also become limited. The private equity firm will want to be more involved. When worse come to worst, a private equity firm may also consider selling the business as part of its exit strategy. Differences between venture capital VS private equity Types of companies Private equity facilitates mature, stable, and well-established companies. On the other hand, venture capital makes their investments in the new start-up companies with a fresh concept and good future prospects. Types of industries Private equity firms can invest in almost all kinds of industries. On the contrary, venture capitalists invest in firms that require heavy investment initially. An example of such industries includes high technology and energy conservation. Risk Factor Private equity is less risky as compared to venture capital. This is again due to the fact that private equity invests in stable companies whereas, venture capital is usually invested in start-up companies. Involvement of investor In private equity, the business is completely under the ownership of private equity. Whereas, in venture capital, the ownership does not go past the 49% mark.

Number of investments made in companies Private equity firms invest in content aggregation toolsOn the other hand, venture capital firms invest in more companies as compared to private equity firms. Investment stage As discussed earlier, private equity firms invest in a company at a later stage. Venture capital firms invest in a company at its early stages of development. Main Focus The main focus of private equity firms is on the governance of the company. This may include all the internal and external factors that may affect the company. Venture capital firms focus on managing the company. They exercise their management capabilities to help the company move forward. For more information visit our website https://www.thebusinessgoals.com/importance-of-business-research/.