PE and VC primarily differ from each other in the following ways:
Pitchbook blog. (2021, July 15). Private equity vs. venture capital: What’s the difference? Pitchbook. https://pitchbook.com/blog/private-equity-vs-venture-capital-whats-the-difference
Venture capital (VC) is a form of private equity and a type of financing that investors provide to startup companies and small businesses that are believed to have long-term growth potential. Venture capital generally comes from well-off investors, investment banks, and any other financial institutions. However, it does not always take a monetary form; it can also be provided in the form of technical or managerial expertise. Venture capital is typically allocated to small companies with exceptional growth potential, or to companies that have grown quickly and appear poised to continue to expand.
Though it can be risky for investors who put up funds, the potential for above-average returns is an attractive payoff. For new companies or ventures that have a limited operating history (under two years), venture capital funding is increasingly becoming a popular – even essential – source for raising capital, especially if they lack access to capital markets, bank loans, or other debt instruments. The main downside is that the investors usually get equity in the company, and, thus, a say in company decisions.
Hayes, A. (2021, May 15). Venture Capital. Investopedia.
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Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies, or that engage in buyouts of public companies, resulting in the delisting of public equity. Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.
A private equity fund has Limited Partners (LP), who typically own 99 percent of shares in a fund and have limited liability, and General Partners (GP), who own 1 percent of shares and have full liability. The latter are also responsible for executing and operating the investment.
Chen, J. (2021, April 30). Private Equity. Investopedia.
What is a private equity firm?
What is a private equity investor?
What is a private equity fund?
Pitchbook blog. (2021, June 9). What is private equity and how does it work? Pitchbook. https://pitchbook.com/blog/what-is-private-equity