Sometimes there can be confusion between Venture Capital (VC) and Private Equity (PE), which is understandable because both are firms that invest capital into companies in hopes of making an attractive profit.
However, there are some important distinctions between the two. A major difference is the size of the companies in which they invest. VC generally invests in very small companies or even start-ups with high growth potential. As opposed to PE that usually invests in large, well-established companies that they believe can be far more profitable for any number of reasons (inefficiencies, poor management, etc.).
VC companies usually purchase smaller portions of equity in companies, anywhere from 1% to 50%, with the hopes of major growth. PE firms generally buy 100% of the company, giving them complete control of the company’s direction.
Typically, VC tends to make smaller investments and spread their risk over many opportunities. PE, on the other hand, make much larger investments and like to concentrate their efforts on a single company, or very few.
These differences are mere generalities meant to serve as a guide, and there are certainly exceptions. At the end of the day, the goal of both Private Equity and Venture Capital is to make money with smart investments.