Venture Capital (VC), Growth Equity (GE), & Private Equity (PE)

What is the Difference?

Venture Capital (VC), Growth Equity (GE), and Private Equity (PE) are three major subsets of a much larger, complex part of the financial landscape known as the Private Markets. While companies within the Public Markets sell shares to the general population – who can then buy, sell, or trade these shares on a stock exchange, companies within the Private Markets give professional investors equity in exchange for funding. The VC, GE, and PE markets make up majority of the private market landscape.

 

VC, GE, and PE firms all raise pools of capital from accredited investors known as Limited Partners (LPs), and they do so in order to invest in privately owned companies. Their goals are the same: to increase the value of the businesses they invest in in order to sell them (or their ownership) for a profit. They primarily differ in the types of companies they invest in, the amount of money they choose to invest and their equity stake (ownership), the risks undertaken, as well as when they get involved during a company's life cycle:

  • Venture Capital: VC investment firms fund and mentor early-stage companies. These young, often tech-focused companies are, in many cases, experiencing rapid growth, and VC firms will provide funding in exchange for a minority stake of equity—less than 50% ownership—in those businesses. VC investors often assume high levels of market and product risk in addition to execution risk, making VC one of the riskiest asset classes within the Private Markets landscape.

  • Growth Equity: GE sits at the intersection of VC and PE, investing in companies that are later-stage compared to most VC investments but not as established as PE investments. Most GE investments are minority stakes of relatively mature companies seeking capital for specific expansion plans, such as entering a new market. The primary risks undertaken by GE investors are execution and management risks.

  • Private Equity: PE usually involves a complete control purchase of the business from existing owners, which could be founders or other investors. Typically, PE firms select businesses that are generating strong, predictable cash flows (which will be used to pay down acquisition debt), operating in a non-cyclical market, and are in the mature-stages of their lifecycle. These companies may be deteriorating or failing to make the profits they should. PE firms thus acquire these companies and streamline operations to increase revenues.  

The Buy-Side Spectrum

Buy-side Key Responsibilities & Skills

  • Modeling & Financial Knowledge: Building financial models, valuing private companies, and analyzing financial statements

  • Industry Knowledge: Demonstrating robust general knowledge about various industries

  • Analytical Thinking: Conducting detailed analyses of companies and investments

  • Communication: Presenting ideas, data, and analyses clearly and concisely

  • Networking: Meeting with investment bankers, investors and other market participants to generate leads for possible deals

  • Negotiation: Establishing a certain level of trust with business owners and executives when working with them before and after closing transactions

Angel Investors

Venture Capital

Growth Equity

Private Equity

Initial Public Offering (IPO)

Risk/Return & Stage of Business

Who are the Main Players in VC, GE, and PE?

VC

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GE

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PE

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