Private equity and venture capital

What is the difference between Venture Capital and Private Equity?

The answer to the textbook that most B-School professors will give is that venture capital is part of a larger private equity asset class, including venture capital, leveraged buyouts, MBO, MBI', bridges and mezzanine investments. Historically, venture capital investors have provided high-risk equity capital for start-ups and early-stage companies, and private equity firms have provided secondary equity and mezzanine investments for more mature companies in the company's lifecycle. Traditionally, venture capital firms have higher scaping rate expectations, are more greedy than valuations, and have more regulatory constraints than private equity firms.

Although the above description is technically correct and is basically the correct form from a historical perspective, the line between venture capital and private equity investment has become more intense due to increased competition in the capital markets over the past 18-24 months. blurry. Today's capital markets are strong, and even if they are not in a bubble state, there are too many capital chasing too few quality deals. Fund managers, investment advisers, fund managers and capital providers are under increasing pressure to invest. This additional money supply increases competition among investors, driving entrepreneurs' valuations and investor yields to fall.

Increasing competition between investors has forced venture capital and private equity firms to expand their horizons to continue to seize new opportunities. In the past 12 months, I have seen private equity firms increase their willingness to consider early stage companies and venture capital firms to lower yield requirements in order to be more competitive in securing future opportunities.

The moral of this story is that if you are an entrepreneur seeking investment capital, your timing is good. While the traditional rule of thumb explained above can be used as a basic guiding principle in determining the applicability of investors, do not let traditional guidelines prevent you from exploring all types of capital providers. While some basic rules may be changing your capital formation goals should remain the same: accept the advice of venture capital investors, private equity firms, hedge funds and angel investors while trying to find the highest valuation with the lowest mix through the entire capital structure Capital costs while maintaining as much control as possible.

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Orignal From: Private equity and venture capital