Top 7 Difference between Venture Capital and Private Equity

Venture capital and private equity are two types of financial assistance that are used by companies in different stages. They are often considered as one because of their similar concept. However, there is a significant difference between these two concepts. Private Equity is a large investment in developed companies and venture capital is a small investment usually made in initial stages of development of a company.

Private equity funds refer to investments made by investors for investment purposes. Whereas, venture capital refers to funding to those ventures that are backed by new entrepreneurs, have high risks, and who require money to shape their ideas.

This article will make you understand the difference between private equity and venture capital.

Top 7 Difference Between Venture Capital and Private Equity

What is Venture Capital?

Venture capital is referred to funds invested by individuals or investors to start-ups or small companies aspiring to establish a fresh concept and new entrepreneur. All those new private companies who cannot raise their funds from the public sector may raise funds from the venture capital.

This type of investment indicates high risk but is supported by fresh and top qualified entrepreneurs. Venture Capital firms assist developing businesses in their initial stages before making it public.

It is a popular funding process and sometimes required to raise money for bank loans, capital markets, or other debt instruments. These type of investor is known as a Venture Capitalist, and the capital they provide is called equity capital.

What is Private Equity?

Private equity can be defined as the capital investment, which is made by companies or investors in the private firms that are not a part of the stock exchange. These fund investments are made by the high net worth firms or individuals. These investors acquire private companies shares or earn authority of public companies to take them private and de-list from public stock exchanges.

Private Equity firms purchase an existing company and help them to develop and expand. The primary strategy of this entity is Venture Capital, Mezzanine Capital, Leveraged Buyout, and Growth Buyout.

This entity has become an essential part of the financial services and is one of the attractive funding options.

This article is a ready reckoner for all the students wanting to learn the difference between Venture Capital vs Private Equity.

Top 7 Difference Between Venture Capital and Private Equity

Parameters Venture Capital Private Equity
Meaning These are small investments used to grow the company in their primary stage It is the investments to those firms which are not listed on any public stock exchange
Investment Stages Initial stage Later stage
Fund Invested In a large number of firms In a few companies
Industries Industries such as high technology, energy conservation, etc. that need initial investments All Industries
Focus on Management Skill Corporate Governance
Risk Involved High Low
Capital Required For operations growth It is required for business expansion and growth

The above mentioned is the concept, that is elucidated in detail about ‘Difference between Venture Capital and Private Equity’ for the Commerce students. To know more, stay tuned to BYJU’S.


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