The terms “venture capital” and “private equity” are often interchanged and confused, though they are as different as apple and orange. Venture capital (VC) is investment in a business which needs equity funding to grow, usually because it cannot generate enough cash itself from its existing commercial activities to meet its requirements and achieve its desired goals.
On the other hand, private equity (PE) is totally different. It typically involves acquiring a matured business with a proven operational track record from its current owners, either by a management buy-out (MBO) by the existing management, a management buy-in (MBI) with a new team acquiring an existing business, or a hybrid of the two- i.e., buy-in management buy-out (BIMBO).
The following table enlists the main differences between venture capital and private equity:
| Venture capital | Private equity | |
| Investment stage | Seed or start-up stage | Growth stage |
| Investment period | 2-10 years | 3-5 years |
| Investment size | Small | Large |
| Use of borrowing/leverage | Leverage is not used | Leverage can be used |
| Failure risk | High | Low |
| Type of investee | New or conceptualized | Well established |
For more, see: venture capital versus private equity.
