Tyler Tysdal is a financial expert who has been both a fund manager and an investor into various vehicles for many years. Tyler has been kind enough to spend some time with us to help answer some of your most common questions when it comes to investment. One such question which we are asked about a lot is the difference between private equity and venture capital, and whether there is in fact a difference between the way in which each fund is managed. Let’s take a look at this question and learn more about these tow investment strategies.
Is There A Difference?
You can certainly be forgiven for thinking that these two invest approaches are the same given that both consist of investment into companies. Whilst there are a great many similarities between these two investment vehicles there are also some stark contrasts which is why they should not be considered as one in the same.
Types of Investment
One of the key areas of difference is in the companies which are invested into, in the case of private equity these investment funds will invest into established private businesses, occasionally they will invest in public companies but only in order to turn them into private companies. When it comes to the investment of venture capital these are exclusively for young businesses and start-ups who are looking for both invest and expertise which can impact opportunities which the business has ahead of it.
As you can imagine there is a significantly lower risk when investing in a private equity fund that if you were to invest in a venture capital fund. The former will involve a company which is already established and one which has a pre-existing track record, the latter involves larger levels of risk because of the fact that there are is lot of unknown information about how this company will operate moving forward and what levels of success it can expect to find.
We can also see a difference in the types of industries which these funds will look to invest in. Let’s take the case of venture capital first, generally speaking this will involve companies which are in industries which require heavy investment such as tech, finance, energy and chemicals, for private equity investments the type of industry is usually irrelevant.
Goals and Aims
Whilst both investments seek to provide the highest level of profit which they can for their investors, the individual and specific goals for each type of investment is actually very different. For example in the case of private equity investments, the goal here will be to expand the business, increase its revenue and push for growth. When a fund invests in a venture capital project it will be looking to provide a solid foundation for this new business to establish itself and the focus will be very much on sailing up operations.