Difference between "Private Equity" (PE) and "Venture Capital" (VC)

There is the MASSIVE difference between "Private Equity" (PE) and "Venture Capital" (VC). Here's the difference between PE and VC EXPLAINED.

Difference between "Private Equity" (PE) and "Venture Capital" (VC)

Most of us are familiar with investing in the "public market" like stocks. "Private markets", on the other hand, deal with "venture capital" (VC) or "private equity" (PE) which is ownership in a company that is not publicly listed. Like investing into a hot tech company like Google.


Main difference

  • VC is likely an investment into EARLY stage company (think startups). 
  • PE targets more MATURE companies that may be close to listing on a stock exchange or are large in size. 
  • Particularly for PEs, these investments are not as easily accessed by the average investor because they are usually very large in size (tens if not hundreds of millions of US$) and not listed in public markets. 
  • VCs/PEs may also lock your money up for multiple years.

5 stages from VC to PE investing

Here's 5 stages from VC to PE investing and what they mean:

Angel (pre-VC)

"Angel" investors give early stage support to startup level type companies when institutional investors are not ready to invest yet. This involves a company which may have an 'idea' but has not properly validated it yet and built it into a business. To raise funds these companies will ask friends or family to financial back them.

Investment size: US$10K - US$250K

Seed (VC)

These companies have now at least have somewhat validated their product/service with customers or convincing research. The money is typically used for product development and business expansion and this is when the first full time Sales & Marketing people get hired.

Investment size: US$250K - US$2M

Growth (VC/PE)

At this stage companies more likely has figured out where their product/service has a need in the market but may still be unprofitable. The fundraising is mainly for EXPANSION both for the team and their business...like pouring oil on a fire.

Investment size: US$10M - US$50M

Crossover (PE)

Investors at this stage are looking for companies that have SUSTAINABLE business models & profitability. This funding may be used to expand into new international markets or develop multiple products/services. Listing on a stock exchange (IPO) may not be far.

Investment size: US$50M - US$100M

Late stage/buyout (PE)

Investors may be most focused on making these mature companies more efficient, marking up its value then 'flipping it' for a bigger multiple (return). The company is very close to an EXIT either listing on a stock exchange (IPO) or getting "bought out".

Investment size: Depends but could be millions into billions.

What's your view on VCs and PEs?

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