Said another way, if you are still raising capital in “rounds”, then you are squarely a target for the VC community. Not to oversimplify things, but if your business falls somewhere between start-up and 5 years in operation, you are most likely a better target for venture capital.“Stage” can mean a lot of things but can generally be defined in terms of (i) length of time in operation and (ii) EBITDA – you either have it, or you don’t. Perhaps the most universally applicable differentiator between VC and PE funds is the stage of company in which they invest. Stage of company in which they invest.

Just remember that the guide below will apply in most cases, but there are exceptions to every rule: So, without further ado, here are the main differences between PE and VC. The Key Differences Between Private Equity and Venture Capitalīased on the definitions above, PE and VC may seem relatively similar at this point, but a closer look will reveal some important distinctions. However, they generally focus on emerging companies or technologies that are earlier in their lifecycle and show greater upside potential (described further below). Similar to PE funds, venture capital firms also invest as General Partners on behalf of institutions and other accredited investors. Using this capital, PE funds will source investment opportunities relevant to their investment criteria, negotiate transactions, and work with their acquired companies to improve profitability over what usually amounts to a 3-5 year (or more) investment period. To do this, private equity fund managers, or General Partners, will raise capital from Limited Partners that often consist of pension funds, endowments, high net worth individuals or other entities seeking to invest through this asset class. At its core, private equity is investing into (typically) established private companies to help them grow. Per Socrates’ advice above, let’s start by providing some basic definitions of PE and VC: So, it seemed time to lay out the primary differentiating factors to eliminate any confusion. Yes, in concept, both are vehicles for capital to flow into private companies with the expectation of returns that beat the public markets, but the differences between these asset classes far outnumber the similarities. While both sectors are now fairly mature, it remains surprisingly commonplace for business owners to use the terms PE and VC interchangeably. Introduction & Definitions of Private Equity and Venture CapitalĪt 60+ years since the birth of the Private Equity (PE) and Venture Capital (VC) industries, it’s easy to marvel at what they’ve become from their humble beginnings in the 1950’s. “The beginning of wisdom is the definition of terms” (Socrates)

Private equity vs venture capital