PRIVATE EQUITY AND VENTURE CAPITAL

Private equity is sometimes confused with venture capital because both refer to firms that invest in companies and exit by selling their investments in equity financing, for example, by holding initial public offerings. (IPOs are the process of offering shares of a private corporation to the public in a new stock issuance for the first time,) However, there are significant differences in the way firms involved in the two types of funding conduct business.

Private equity and venture capital invest in different types and sizes of companies, commit different amounts of money, and claim different percentages of equity in the companies in which they invest.

• Private equity is capital invested in a company or other entity that is not publicly listed or traded.

• Venture capital is funding given to start-ups or other young businesses that show potential for long-term growth.

• Private equity and venture capital buy different types of companies, invest different amounts of money, and claim different amounts of equity in the companies in which they invest.

Private equity is a source of investment capital from highnet-worth individuals and firms. These investors buy shares of private companies—or gain control of public companies with the intention of taking them private and ultimately delisting them from public stock exchanges.

Large institutional investors dominate the private equity world, including pension funds and large private equity firms funded by a group of accredited investors.

Venture capital is financing given to start-up companies and small businesses that are seen as having the potential to generate high rates of growth and above-average returns, often fuelled by innovation or by carving out a new industry niche.

The funding for this type of financing usually comes from wealthy investors, investment banks, and specialized VC funds. The investment does not have to be financial, but can also be offered via technical or managerial expertise.