Venture Capital Versus Private Equity
Private equity is termed as an investment made by a firm or company. You can invest in a public company. All the funds here are given when the firm is at its maturity level. This includes both debt financing and equity. So, private equity firms buy or raise funds for the already settled company and then help it grow further.
Venture capital is capital sponsored by companies or individuals for startup companies and forms having Innovative ideas. The new firms those are not able to generate funds through public can surely choose venture capital as an option. The venture capital invest and help companies to work on their new ideas.
Differences between venture capital and Private Equity
•The venture capital investments are made at an early stage during startups, whereas private equity is during the expansion period of the firm when they are already occupied.
•If the risk is considered, the venture capital takes a lot more risk than private equity firms. The venture capital invest In many companies but the private equity does invest in restricted limits and in companies that could gain profit quickly.
•The private equity is mostly interested in funding companies having a good record of performance. In the other hand, venture capital are known to raise funds for companies at the initial level having no track record.
•Also, private equity investment can be made in any company. But when it comes to venture capital, they involve themselves in companies that could yield better such as biomedical, information technology, etc. as they go on making innovations.
•The funds through private equity are used in the reconstruction of the company’s financial status or something else. It’s used for further betterment. But, when it comes to venture capital it’s wholly different. Here funds are used to launch new products and services in the market for the initiation of the firm.
•The venture capital firms don’t have complete ownership of the investee firm. But when it comes to private equity, they own companies to gain significant profits accordingly.
• The venture capital focuses more on management capabilities whereas private equity firms have their focus centred on corporate governance.
•The considerable risk is involved in venture capital funding, and you won’t find much risk in private equity firms.
This is the whole difference between venture capital and private equity firms. Both raise funds but for different agendas and on different companies based on their status of achievement. Both have their importance for a startup as well as further development and innovation in the company’s outlook and ideas.
You have followed all the points which was a brief comparison between venture capital investments and private equity investments.