Private Equity vs Venture Capital
| # | Private Equity | Venture Capital |
| 1 | Invests in early-stage startups/companies | Invests in existing companies |
| 2 | Invests to gain full control of the company | Control is split with founders, angel investors, and other stakeholders |
| 3 | Invests across different industries | Focuses on tech startups |
| 4 | Investment is through equity and debt | Investment is solely based on equity |
| 5 | Focuses investments in a small number of companies | Invests across a large number of companies to supplement cases of losses and profits |
| 6 | Less likely to take risks | Takes informed risks on startups |
What is private equity?
Private equity is a kind of investment where high-net-worth individuals and firms invest in private companies that are under financial strain. It could also be in public companies but they’re delisted from the stock exchange market.
Private equity firms typically seek to invest in companies that have growth potential or are undervalued, with the aim of improving the company’s operations, financial performance, and overall value over a period of several years. They may take an active role in managing the company, providing guidance, and making strategic decisions.
Read more: What Is Private Equity?
Examples of Private Equity firms
- The Blackstone Group: The Blackstone Group is a global private equity firm that was founded in 1985. It has invested in a large portfolio of companies such as Hilton Hotels, Bumble, and Merlin Entertainments.
- The Carlyle Group: The Carlyle Group was founded in 1987. It has invested in many successful companies such as Dunkin’ Brands, Beats Electronics, and Hertz.
- KKR & Co. Inc.: Founded in 1976, KKR & Co. Inc. has invested in many successful companies such as GoDaddy, Dollar General, etc
- TPG Capital: TPG Capital is a private equity firm that was founded in 1992. It has invested in companies such as Airbnb, Uber, and McAfee.
- Apollo Global Management: Apollo Global Management was founded in 1990 and has invested in a wide range of industries—media, healthcare, and financial services and in a large portfolio of companies such as Caesars Entertainment, ADT, and CareerBuilder.
Pros and Cons of Private Equity
| Pros | Cons |
| They usually bring more funds. | Company owners give up control. |
| They offer experience and expertise to aid company growth. | Possibility of selling the company. |
| Investments cuts across industries. | Cutting costs could involve staff layoffs. |
What is venture capital?
Venture capital is an investment in new startups/companies by individuals or firms. It mainly focuses on companies that are just starting out with a high potential to grow.
Venture capital firms invest in companies that have innovative products, technologies, or business models, with the potential to disrupt existing markets or create new ones. They look for companies with high growth potential, large addressable markets, and a strong team with a clear vision for the future of the company.
Examples of Venture Capital firms
- Sequoia Capital: Founded in 1972, Sequoia Capital is one of the oldest and most successful venture capital firms in Silicon Valley. It has invested in many successful tech companies such as Apple, Google, PayPal, and Airbnb.
- Accel: Accel is a global venture capital firm that has invested in companies such as Facebook, Dropbox, Slack, and Spotify. It was founded in 1983.
- Andreessen Horowitz: Founded by tech industry veterans Marc Andreessen and Ben Horowitz in 2009, Andreessen Horowitz has invested in companies such as Airbnb, Lyft, Pinterest, and Slack.
- Kleiner Perkins: Kleiner Perkins is a well-established venture capital firm that has been investing in innovative companies since 1972. It has backed huge tech companies such as Google, Amazon, and Genentech.
- Greylock Partners: Greylock Partners is a venture capital firm that has invested in companies such as LinkedIn, Airbnb, and Facebook. It was founded in 1965.
Pros and Cons of Venture Capital
| Pros | Cons |
| Access to a network of key players in the industry. | Funds might not be enough |
| No obligation to repay the investment. | Venture capitalists are only interested in companies with the potential to disrupt the market hence there’s stiffer competition |
| Company owners still have a level of control. | Profit is not so high compared to private equity |
Similarities between private equity and venture capital
- They both invest in companies for profit
- Give business owners funds to grow their business
- They’re both considered alternative funding sources.
Is venture capital riskier than private equity?
Venture capital is generally considered riskier than private equity, as it involves investment in early-stage companies that have a high likelihood of failure. However, private equity can also carry significant risk, as they invest in established companies that are facing difficult market conditions.
What makes more money: private equity or venture capital?
Whichever makes more money depends on the amount invested and the turnout of such investments. But since we’ve learned that private equity investments usually have more funds, it is safe to say that private equity churn more profit than venture capital on average.
Bottom Line
Private equity and venture capital are both important forms of investment that have the potential to provide significant returns for investors. While private equity focuses on more established companies and may involve a greater level of risk due to the size of the investments, venture capital is known for its focus on early-stage companies with high growth potential.
Ultimately, the decision to invest in private equity or venture capital will depend on an investor’s risk tolerance, investment goals, and the opportunities available in the market.
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