Venture capital and private equity are two types of investment into a company or companies, where investors exit and hopefully make a profit by selling in equity financing. The similarities mean the two terms often get confused, but there are many differences between these two types of investing. The main differences are the life-stage of the company being invested in and the types of industry investors are attracted to.
works with a venture capital firm that has a strong focus on technology investments along with regtech and fintech investments around the world. have a strong focus on technology investments including clean-tech and bio-tech, while private equity investors buy companies across all types of industries.
Private equity is funding provided to businesses in exchange for shares of ownership, in cases where the company in question is not listed or traded on any form of stock exchange. The private equity investor provides investment capital with the aim of generating returns and ultimately delisting the company from public stock exchanges and making it private. A lot of capital is required for private equity investment as the goal is direct investment. The private equity market is therefore dominated by large firms and high net worth individuals.
Private equity firms are typically looking to invest in mature companies that have established revenues. A private equity investor generally prefers lower risk and more predictability for the outcome of their investment, even if it means accepting lower returns. Private equity firms are almost always looking to buy 100% of the companies they invest in and investment amounts can be upwards of $100 million in each individual company.
Venture capital is also funding provided to businesses but is usually Venture capitalists are therefore prepared to take higher risks on an unproved entity for the possibility of generating higher returns should the company be successful. Venture capital funding can come from investment banks, high net worth investors or almost any type of financial institution. Venture capital investment can include both managerial and technical expertise as well as funding. If the entity invested in delivers on its potential, the venture capitalists have the potential to see far higher returns than with private equity investing.
Venture capital funding is popular with newer companies that are unable to attract private equity investment or other forms of debt instruments as they have an operating history of less than two years. Venture capitalists are typically looking to that they believe have the potential for long-term growth. As the company becomes more successful and therefore more valuable, the shares owned by the venture capitalist increase in value. Due to the higher risk involved, a typical venture capital investment will be less than $10 million in a single entity.
Matthew Ledvina is a member of investor clubs in Zurich and London as well as working with a venture capital firm. Investment clubs open up opportunities to access new investments, as the members pool their funds together and make investment decisions as a group. A member vote is used to determine where and when to invest and to exit investments. Investment clubs may provide funding or specialise in a variety of asset classes.