Venture Capital vs. Private Equity: Choosing A Career Adventure
Venture capital and private equity are hot topics for professionals striving to make a new more exciting career path emerge. While both of these fields share many similarities, there are also some key differences between them. Here is what job seekers should consider when choosing which path to pursue.
What is Venture Capital?
Venture capital is a form of private equity that invests in startups and early-stage companies that have a high potential for growth. Venture capitalists typically provide funding to these companies in exchange for equity, and they often take an active role in the management of the company.
Venture capitalists typically invest in companies that are in the technology, healthcare, and biotech industries, although they may also invest in other sectors. These investments are typically riskier than traditional investments, as startups and early-stage companies are often unproven and have no track record of success.
What is Private Equity?
Private equity, on the other hand, is a form of investment that focuses on established companies that are looking to expand or restructure. Private equity firms typically acquire a controlling stake in these companies and work to improve their operations, increase revenue, and maximize profits.
Private Equity investments are often made in mature industries, such as healthcare, energy, and consumer goods. These investments are typically less risky than venture capital investments, as the companies have a proven track record of success and are often profitable.
Differences in Investment Strategy
One of the main differences between venture capital and private equity is the investment strategy. Venture capitalists are focused on investing in companies with high growth potential that are in the early stages of development. These companies are often pre-revenue or have only recently started generating revenue.
Private equity firms, on the other hand, are focused on investing in established companies that are looking to expand or restructure. These companies are often profitable, with an established customer base and a proven track record of success.
Differences in Investment Size
Another major difference between venture capital and private equity is the size of the investments. Venture capitalists typically invest smaller amounts of money in startups and early-stage companies, with investments ranging from $100,000 to $10 million.
Private equity firms, on the other hand, make much larger investments in established companies. These investments can range from $10 million to $1 billion or more.
Differences in Investment Horizon
Venture capitalists and private equity firms also have different investment horizons. Venture capitalists typically invest in companies with the goal of achieving a high return on investment within a relatively short period, typically 5-10 years.
Private equity firms, on the other hand, have a longer investment horizon, typically holding onto their investments for 7-10 years or more. This allows them to work with the company to improve its operations, increase revenue, and maximize profits.
Differences in Risk Profile
Venture capital investments are often considered to be riskier than private equity investments. This is because startups and early-stage companies are often unproven and have no track record of success. Venture capitalists must carefully evaluate the potential risks and rewards of each investment before committing capital.
Private equity investments, on the other hand, are often less risky because the companies have a proven track record of success and are often profitable. Private equity firms can also use their expertise to identify and mitigate potential risks before making an investment.
Differences in Management Involvement
Venture capitalists often take an active role in the management of the companies they invest in, providing advice and guidance to the management team. This is because startups and early-stage companies often lack the expertise and experience needed to successfully grow and scale their businesses.
Private equity firms also play an active role in the management of their portfolio companies, but their involvement is typically focused on improving operations, increasing revenue, and maximizing profits. Private equity firms may bring in new management teams, restructure the company’s operations, or make other changes to improve the company’s performance.
Differences in Exit Strategy
Venture capitalists and private equity firms also have different exit strategies. Venture capitalists typically exit their investments through an initial public offering (IPO) or a merger or acquisition. This allows them to realize a high return on investment and provide liquidity to their investors.
Private equity firms, on the other hand, often exit their investments through a sale to another company or a secondary buyout. This allows them to realize a return on investment and provide liquidity to their investors. Private equity firms may also take a company public through an IPO if they believe it will provide the best return on investment.
Embarking on a career in venture capital or private equity, or working for companies backed by them, can be a thrilling and fulfilling experience. These industries offer the chance to work with some of the brightest minds and most innovative companies out there, and you can have a real impact on their growth and success.
It’s important to carefully consider your goals and preferences when choosing which path to pursue, but being open to taking risks is often a crucial element of success in these industries. With the right mindset and a willingness to take on challenges, a career related to venture capital or private equity could be the right next step in your career. Reach out to our team of career strategy experts for support in finding the ideal role.
Written By: Terri Wiksten, Chief Operating Officer
Terri Wiksten is a dynamic powerhouse who works harder than anyone you know and tackles every task with 100% effort while maintaining her enthusiastic, cheerleader attitude!
She loves helping professionals save time and money as they search for their next challenge and thrives on how technology turned this industry on its head, allowing for constant change and opportunity to do things better and more effectively for our clients.