Venture Capital and Private Equity are quite similar! Institutional investors invest in a PE or VC firm. These firms then invest in private companies and sell for higher prices by improving the profitability. However, there are significant differences! The main difference? These fields invest in different stages in the funding life cycle. There are four stages in a funding life cycle on the way to success: introduction, growth, maturity and decline stage. There are other differences.

Venture Capital

VC companies solely invest mostly the minority of small business with equity in the introduction phase of the funding life cycle with the potential to generate high rates of returns. VC firms seek for 5 up to 10 times the investments. High-risk investments may offer the chance of higher returns. They consider to invest in innovate technology with a size between 0.5 and 10 million Euro.

Private Equity

The key investment consideration for Private Equity are the historical and expected financial results. PE firms use debt and equity to raise capital. They invest more than 5 million Euro in the minority or majority in a solid business plan of a company. A solid business plan has a medium risk, so the returns will be lower. The averaged-return are two times the investment. Do you want more to know about Private Equity and how to secure a job in this sector? Check my previous article.

“I found that the biggest difference was the key investment considerations during the investment analysis phase.”

How do you experience the differences as an intern?

“The main issues and responsibilities were quite similar during my internship in VC and PE. During both internships, I was mainly involved in searching for the right investments by analysing businesses and researching markets. I found that the biggest difference was the key investment considerations during the investment analysis phase. In VC it was important that the start-up solved a problem and brought an innovative technology or business plan to the market, while in PE the historical and expected financial results were an important investment consideration.” – Yasmine Lurvink

By Dave van der Heiden