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The Difference Between Venture Capital and Private Equity

Aren’t VC and PE the Same Thing?

Many times, the words Venture Capital and Private Equity are uttered in the same breath, often giving the layman the impression that the two terms may be equal or synonymous.

VC and PE are two major subsets of the private market that focus on raising capital, investing said capital in private companies, and increasing the value of the company in hopes of selling it for a profit down the road.

Although both VC and PE firms serve a similar function, the types of companies they invest in, the point at which they get involved, and the percentage of equity they ask for in return vary greatly.

Venture Capital firms choose to work with younger companies and startups and provide them with mentorship and guidance in addition to financial support. They ask for minority equity in the startup that they invest in and VC firms also tend to invest in tech startups more than startups from any other industry.

Private Equity firms, on the other hand, are less “venturous” than Venture Capital firms and prefer to invest in well-established companies in traditional industries. Since Private Equity firms come into play much later in a company’s life cycle, a startup that was initially backed by a VC firm may end up being bought out by a PE firm, a few years later. Unlike VC firms, however, PE firms ask for a majority stake in the company or full ownership.

Private vs. Public Markets

When we talk about the private market, we refer to the market in which private investors and wealthy individuals are able to fund startups and young companies that haven’t yet reached the public market. In contrast to the private market, the public market includes the forms of investment which we are all familiar with, such as stocks and bonds. As its name suggests, the public market is not just exclusive to wealthy individuals—it’s available to everyone.

This then raises the question, why are companies spending more time in private markets and not going public as quickly as they used to? After all, stocks allow businesses to split up their equity into pieces and essentially crowdfund their investment efforts. Doesn’t the public market contain a much larger amount of capital?

While going public used to be the most common course of action for young companies, many are choosing to go to private markets for a few reasons.

First, private markets are becoming flooded by investors and available capital, meaning that large sums of capital can be raised without ever going public and releasing an IPO. Second, the increasing popularity of Venture Capital and Private Equity have made it even easier for new companies to enter the private market and find investors. In other words, the growth of the private market has been fueled by a growth in the supply of capital, with demand following closely behind it.

There also happen to be a few benefits to staying private rather than going public. Private companies don’t have to answer to public shareholders and have a higher degree of freedom when making decisions. They’re also not obligated to disclose financial statements and earnings reports, allowing them to keep this information from competitors.

The Role of an Accelerator in Venture Capital

Like we discussed in our article, “How Does Venture Capital Work?“, an accelerator’s job is to prepare startups to approach venture capitalists and give them the tools they need to convince all of the partners of a VC firm to invest in them. This involves preparing an executive summary, documenting the sales process, building a pitch deck, presenting to a board of investors, and much more.

Even if you’re fully prepared to pitch your idea to investors, finding the right VC firm and getting your foot in the door is half the battle. The exclusivity of the private market makes it much more difficult to break into, in contrast with the public market where anyone can provide you with capital.

At Apogee Accelerator Group, we not only work with your business to make it appealing to investors but we also introduce you to our best of breed partners and help you close the deal. For this reason, we’ve often been described as “LinkedIn meets Sequoia Capital” for every type of entrepeneur—seasoned or not.

If you’re considering seeking Venture Capital for your business and you’d like to reach the next series of funding, visit our page. 

Written by Corey Singleton

"As a business owner, I put big money into sales and marketing without ever really knowing what results I was going to get. Tired of this ambiguity, I decided to create a new kind of sales support company: one that provides a guarantee.

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