Venture Capital Vs Private Equity Investing

There are some major differences between venture capital and private equity investing, and one of the most important is the level of people involved. Unlike venture capital firms, private equity firms do not have to engage in the same level of management, focusing only on financial decisions. Instead, they must work out the numbers to make the business work. Despite these differences, both venture capital and private equity have become increasingly popular over the past few years. In fact, the amount of capital invested annually rose more than 13 times between 2010 and 2019, topping $160 billion annually.

VC firms invest at earlier stages in the startup lifecycle

Most VC firms invest at the early stage, or “series A” of the startup lifecycle. These funds are used to grow the company from a concept to a profit-generating business. Investors typically seek companies with a realistic timeline, and often look for those with a proven technology or solid business strategy. Angel investors prefer to invest in early stages because they have less influence over the startup’s future than VC firms do.

VC firms collect management fees from limited partners

VC firms collect management fees from limited partners. These fees are capped at a fixed amount, often called a management fee. LPs have the right to reject a particular rate of return and may insist on rate steps down. By doing this, they are effectively granting the VCs a free loan, hoping to recoup the original fees later. This process, called recycling, … READ MORE ...