Private equity vs. Venture capital: what's the difference? (2024)

The difference between private equity vs. venture capital is subtle: both are types of companies that invest in private companies. Actually,venture capitalusually considered a speciescapital fund. But the difference between these two areas offinancial serviceslies in the types of companies they invest in and the paths to a career in venture capital (VC) or private equity (PE).

Definitie van private equity

Private equity involves investing in private or unlisted companies. Essentially, private equity is the type of investment – ​​stock is money and control in a company, and private equity firms (or PE firms) are the type of financial institutions that make investments in private companies.

Ultimately, “the type of PE firms varies depending on the type of investing activities they do,” says Ambarish Srivastava, associate director, private equity and advisory at Acuity Knowledge Partners.

Some companies specialize in buyouts, or purchasing majority stakes in companies, which means the company effectively gains control over the company and its decision-making. But venture capital (VC) is also a form of private equity.

Careertypen in PE

The daily activities at PE depend on the type of investment the company makes and the level of seniority a professional has.

Generally, people in PE “work on marketing pitches for new fundraising, looking for investment opportunitiesactiva, evaluate potential targets and monitor the performance of portfolio companies,” says Srivastava. 'They undertake a number of activities, including:research, industrial studies and modelling.”

Private equity follows a similar career progression to many other fieldsfinance, like itInvestment bank: You start as an analyst or associate and work your way up to vice president and eventually partner.

Analysts "are concerned with finding and evaluating deals and other tasks related to deals and fundraising," says Srivastava.

With more seniority, private equity professionals will take on more direct relationship management with clients and handle deals from start to finish.

Definition of venture capital

Venture capital involves investing in startups and early-stage companies using funds fromthe investment bank, privateinvestorsand private equity firms.

The main goal of a venture capital firm "is to identify promising startups with high growth potential and help them grow by providing financial support and strategic guidance, mentorship and access to networks," says Liang Zhao, an experienced venture capitalist and CEO of a marketing consultancy firm . . Vansary.

A VC firm can specialize in a number of different ways. “Some venture capital investments focus on specific sectors (such as technology, AI,healthcare, or cleanenergy), while others focus on specific investment stages (seed stage, early stage, late stage), geographic regions, or types of startups (consumer, enterprise, B2B, biotech, etc.),” says Zhao.

Ultimately, the way a venture capital firm invests depends on the sector and the stage a company is in. For example, a venture capital firm will likely invest only a small amount in a "seed company" that has not yet started. On the other hand, companies that are in an 'expansion phase' with consistent and promising growth can receive larger amounts.

Carrièretypen in VC

As with private equity, a person's daily life in venture capital depends on the type of company they work for.

“A typical day may involve deal sourcing, due diligence, meetings, portfolio support, investment decision making, sector research,networkand fundraising for the foundation itself,” says Zhao.

VC careers also follow the same progression as private equity, starting as an analyst and progressing to senior positions such as partner.

>>BUT:Learn more about how you can be oneventure capitalist.

Private Equity vs. Venture Capital-løn

When you embark on a career in VC or PE, you start as suchfinancial analyst. According to the U.S. Bureau of Labor Statistics, financial analysts have aaverage annual salary of $108,790. However,financial analystis a broad title that covers many different roles within the financial sector,

Ultimately, salaries in VC and PE are highly dependent on things like deal amounts, commission structures and bonuses. Additionally, many VC and PE professionals start in investment banking, which is notorious for high base salaries.Goldman Sachsreportedly payfirst-year analysts $110,000 per year.

However, according to Glassdoor, analysts in both careers earn, on average, about a similar salary to PE analysts$ 112.200per year and VC analysts on average approx$ 111.000.

>>BUT:Check otherspopular careers in finance.

How do you get into venture capital vs. venture capital? Private assets

Education and background

You normally have at least a bachelor's degree in finance,financial accounting,economy, or company to pursue a career in private equity or venture capital. However, some companies prefer higher degrees, such as MBAs or master's degrees in finance or economics.

In addition to your diploma, your experience and background are essential.

Srivastava suggests that a good way to get into private equity is to “gain experience working withaccompanimentcompanies or investment banks.”

To get into VC, Zhao advises people early in their careers that "roles in startups, investment banking, consulting or business development can also provide valuable skills and exposure." Additionally, Zhao says, “Internships in venture capital, startups, or related fields can provide valuable insights and connections.”

Certifications and licenses

A specialized certification can help you showcase your skills and become more marketable to highly competitive VC and PE firms. Some of the top opportunities available to professionals in both career paths include:

• Chartered Financial Analyst (CFA):This often requires CFAinvesteringsbankiersand other careers in finance. It is a challenging certification, but once achieved it demonstrates a high level of knowledge in the field of finance and investing.
• Chartered Private Equity-analist (CPEA): By earning a CPEA certification, you show employers that you understand PE inside and out.
• Chartered Alternative Investment Analyst (CAIA):The CAIA designation demonstrates strong expertise in alternative investments such as private equity, real estate and commodities.
• Financial Risk Manager (FRM):Both VC and PE carry high risk. Financial risk managers and those with FRM certifications are experts at assessing risk and identifying the best routes to keep the business safe.

Skills

In private equity and venture capital, business skills are essential. These are finance careers that focus on choosing the right companies to invest in and helping those companies grow to increase your company's profits. Strong business acumen and relationship management skills are necessary to succeed no matter what.

In addition, PE and VC professionals need core financial skills, such as:

• UsingExcelto create economic models
• Compare business investment opportunities usingcomparable business analysisand othersbusiness reviewmethods
• Calculating growth metrics such asgo forwardIncompound annual growth rates (CAGRs)

Because private equity and venture capital depend on relationships, professionals need strong relationshipssoft values, included:

• Announcement
• Cooperation
• Detail court
• Think analytically
• Time administration

In short: what's the difference?

Private equity and venture capital are very similar areas of financial services, especially since venture capital is typically considered a form of private equity. However, private equity firms invest in mid-market or mature companies, often taking majority control of the company. On the other hand, venture capital firms specialize in helping early-stage companies get the money they need to build their brand and turn a profit.

Another key difference between the two is that venture capital "typically involves higher risk but delivers significant returns," Zhao says. By comparison, private equity “usually involves lower risk compared to venture capital investments, but can provide more modest returns.”

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