10 Major Difference Between Private Equity And Venture Capital (With Chart)

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What Is Private Equity (PE)?

Private equity (PE) are those investments that are made in companies that are not listed publicly on any stock exchange or simple it refers to investment in shares outside a stock exchange.  As a source of investment capital, private equity comes from high-net-worth individuals and firms that purchase stakes in private companies or acquire control of public companies with plans to take them private.

A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor. Each of these categories of investors has its own set of goals, preferences and investment strategies; however, all provide working capital to a target company to nurture expansion, new-product development or restructuring of the company’s operations, management or ownership.

What You Need To Know About Private Equity

  1. Private equity (PE) are those investments that are made in companies that are not listed publicly on any stock exchange.
  2. Private equity firms indulge in acquisitions at a later stage when the target company is matured and developed.
  3. Private Equity (PE) investments can be carried out in all industries, irrespective of the business type.
  4.  Private equity firms do not diversify their risk; they prefer to invest a huge amount of capital into a single matured company with a track record because the probability of absolute losses from such type of companies is minimal.
  5. Private Equity funds are provided to mature and developed companies with a track record.
  6. Private Equity firms aim at occupying a major stake. They usually buy 100% ownership of the companies in which they are investing.
  7. Since Private equity firms invest in matured and already established companies, they tend to spend comparatively huge resources because the probability of absolute losses from such type of investment is minimal.
  8. Private Equity funds are utilized in the financial or operational restructuring of the firms they are investing in.
  9. The risk profile in private equity is comparatively lower than venture capital.

What Is Venture Capital (VC)?

Venture capital is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks and any other financial institutions. It is important also to note that, venture capital does not always take a monetary form; it can also be provided in the form of technical or managerial expertise.

Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful. Due to the fact that start-ups face high uncertainty, venture capital investments have high rates of failure. The start-ups are usually based on an innovative technology or business model and they are usually from the high technology industries such as information technology (IT), clean technology or biotechnology.  

What You Need To Know About Venture Capital

  1. Venture capital refers to the capital contribution made by an investor whose seeks high potential return. This is generally in a new or expanding company.
  2. Venture capital firms or companies aim at investing at initial stage of the business and mostly in start-ups, where they are projecting potential for success.
  3. Venture capital investment is carried out in industries requiring heavy initial investment such as high technology, energy conservation, biomedical, quality up-gradation etc.
  4. Most venture capital firms prefer to diversify their risk and invest in as many diverse companies as possible, so that if one start up firm fails along the way, the entire venture capital is not significantly affected.
  5. Venture capital funds are provided to small businesses that do not have any track record.
  6. Venture capital firms invest in at most 49% or less of the equity of the firms.
  7. Venture capital firms spend comparatively less on each company since they mainly deal with startups with unpredictable chances of success or failure.
  8. The risk profile in venture capital is comparatively higher than in private equity.
  9. Venture capital funds are utilized in streamlining business operations by way of developing and launching new products or services in the market.

Difference Between Private Equity And Venture Capital In Tabular Form

PRIVATE EQUITY VENTURE CAPITAL
Private equity (PE) are those investments that are made in companies that are not listed publicly on any stock exchange or simple it refers to investment in shares outside a stock exchange.   Venture capital refers to the capital contribution made by an investor whose seeks high potential return.
Private equity firms indulge in acquisitions at a later stage when the target company is matured and developed.   Venture capital firms or companies aim at investing at initial stage of the business and mostly in start-ups, where they are projecting potential for success.  
Private Equity (PE) investments can be carried out in all industries, irrespective of the business type.   Venture capital investment is carried out in industries requiring heavy initial investment such as high technology, energy conservation, biomedical, quality up-gradation etc.  
Private equity firms do not diversify their risk; they prefer to invest a huge amount of capital into a single matured company with a track record because the probability of absolute losses from such type of companies is minimal.   Most venture capital firms prefer to diversify their risk and invest in as many diverse companies as possible, so that if one start up firm fails along the way, the entire venture capital is not significantly affected.  
Private Equity funds are provided to mature and developed companies with a track record.   Venture capital funds are provided to small businesses that do not have any track record.  
Private Equity firms aim at occupying a major stake. They usually buy 100% ownership of the companies in which they are investing.   Venture capital firms invest in at most 49% or less of the equity of the firms.  
Since Private equity firms invest in matured and already established companies, they tend to spend comparatively huge resources because the probability of absolute losses from such type of investment is minimal.   Venture capital firms spend comparatively less on each company since they mainly deal with startups with unpredictable chances of success or failure.  
Private Equity funds are utilized in the financial or operational restructuring of the firms they are investing in.   The risk profile in venture capital is comparatively higher than in private equity.  
The risk profile in private equity is comparatively lower than venture capital.   Venture capital funds are utilized in streamlining business operations by way of developing and launching new products or services in the market.