Private equity vs Venture Capital
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For full text article go to : This article on Private equity vs Venture capital highlights the main differences between the Private equity and venture capital.
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Private equity vs Venture Capital
- 1. Private equity Vs Venture capital -by edu CBA
- 2. Both private equity and venture Capitalist invest in companies, both recruit former bankers, and they both make money from investments rather than advisory fees. But if you take a closer look at them, you'll see that they're significantly different. Private equity vs Venture capital - Definitions
- 3. Private Equity Venture Capital Company Types PE firms buy companies across all industries. Venture Capital are focused on technology, bio-tech, and clean-tech. % Acquired It is seen that the PE firms almost always buy 100% of a company in an LBO Venture Capital only acquires a minority stake which is usually less than 50%. Size PE firms make large investments. ($100 Million to $10 billion) VC generally makes smaller investments which are often below $10 million for early stage companies. Structure PE firms use a combination of equity and debt. VCs firms use only equity (Cash) Stage PE firms buy mature, public companies. VCs invest mostly in early-stage companies.
- 4. Return? • 20% returns is what is targeted by most venture capitals and Private equity funds. But what is generally seen is that they are able to generate returns upto 10%. • The difference here is that in venture capitals the returns are mostly dependent on top firms. They believe in investing in one big winner and making money out of it. • But in Private Equity one can earn great returns without investing in the largest and most well-known companies also.
- 5. Private Equity interviews can have a complete a case study or modeling test. This is because they want to test you since you are going to spend so much time doing analytical and financial modeling work. Venture Capital interviews are more qualitative and fit- focused, especially for early-stage firms. Since Venture Capitals work with companies that are smaller hence detailed financial models don't make sense here. And that's why they focus on relationships instead. Interviews
- 6. You will almost always make more money in PE than in VC. the reason for the same is that there's more money involved and fund sizes are much larger. However if you want to may big money in Venture capital, all you have to do is to find a company to invest which can turn out to be the next Google. But this usually is very rare. If you have a previous Investment Banking experience then, base salaries in both industries are around $100K with widely variable bonuses. The Pay
- 7. The Culture • The work atmosphere and the culture in Private equity is very similar to Investment banking and attracts some of the more extreme and merciless bankers. • The culture in venture capital tends to be more relaxed. Also because people come from more varied backgrounds. • People in PE more often come from pure finance backgrounds, whereas those in VC tend to be technologists turned financiers. • Overall the work hours in higher PE firms tends to be longer as compared to the VC where the approach is a "normal" workweek.
- 8. • So, private equity vs venture capital, what are you up for? • Your inclination towards one of them depends on your goal. If you're trying to make the money in the shortest amount of time possible or you like to work in transaction deals, Private equity is a better option. • If you're more interested in starting your own company one day and you prefer relationships for analysis, Venture Capital is better. Which One Should You Choose?
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