Understanding the Difference Between Venture Capital and Private Equity

Understanding the Difference Between Venture Capital and Private Equity

This article does a good job explaining the differences between private equity and venture capital. We believe the opportunity to help startups and other younger businesses is particularly exciting in the underserved Midwest. The returns here are statistically greater, and the region is fertile ground for innovation and emerging technology.

Tom Kilcoyne, General Partner

Source: Investopedia | Boomerang Blog Team 7/30/2019

Private Equity vs. Venture Capital: An Overview

Private equity is sometimes confused with venture capital because they both refer to firms that invest in companies and exit through selling their investments in equity financing, such as initial public offerings (IPOs). However, there are major differences in the way firms involved in the two types of funding conduct business.

Private equity and venture capital buy different types and sizes of companies, invest different amounts of money, and claim different percentages of equity in the companies in which they invest.

Private Equity

Private equity, at its most basic, is equity—shares representing ownership of, or an interest in, an entity—that is not publicly listed or traded. Private equity is a source of investment capital that comes from high net worth individuals and firms. These investors buy shares of private companies—or gain control of public companies with the intention of taking them private and ultimately delisting them from public stock exchanges. Large institutional investors dominate the private equity world, including pension funds and large private equity firms funded by a group of accredited investors.

Venture Capital

Venture Capital is financing given to startup companies and small businesses that are seen as having the potential to break out. The funding for this financing usually comes from wealthy investors, investment banks, and any other financial institutions. The investment doesn’t have to be just financial, but can also be offered via technical or managerial expertise.

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